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94th Congress 1 
2d Session / 






.III.V 27. 1976 

Printed for the nst- of the Committee on Internationa] Relati 




THOMAS P. MORGAN, Pennsylvania, Chairman 

L. H. FOUNTAIN, North Carolina 
CHARLES C. DIGGS, Jr., Michigan 
ROBERT N. C. NIX, Pennsylvania 
DONALD M. FRASER. Minnesota 
GUS YATRON. Pennsylvania 
ROY A. TAYLOR, North Carolina 
LEO J. RYAN, California 
DONALD W. RIEGLE, Jr., Michigan 
HELEN S. MEYNER, New Jersey 
DON BONKER. Washington 
GERRY E. STUDDS, Massachusetts 

JOHN H. BUCHANAN, Jr., Alabama 
PIERRE S. du PONT, Delaware 
EDWARD G. BIESTER, Jr., Pennsylvania 
LARRY WINN, Jr., Kansas 

Marian A. Czarnecki, Chief of Staff 
George M. Ingram, Staff Consultant 
Charles Paolillo. Staff Consultant 



I I"l SI OF Kl I'KF.Sl \ I \ I l\ 1 -. 

Committee on 1 \ n i;\ moxAt Relati 

Washington, I >.('.. July 07, 1876. 

Last year, the House Committee on International Relations pro- 
posed a new section 107 of the Foreign Assistance A-t of 1961 to au- 
thorize the Agency for International Development (AID) to support 
an expanded and coordinated private effort to promote the develop- 
ment and dissemination of technologies appropriate for developing 
countries. The new provision railed on All) to prepare and transmit 
to this committee and the Senate Foreign Relations Committee a de- 
tailed proposal to carrv out the section. 

Accordingly, AID undertook a study of what could usefully he 
done to implement section L07. This study included both extensive 
discussions within the Agency and a series of workshops participated 
in by a wide range of knowledgeable individual- from private orga- 
nizations and businesses, as well as Members of Congress and coi 
sional staff. At the same time, the Agency commissioned a number of 
papers on various aspects of the subject 

On June oil. 1S>7K. AID transmitted to Congress the proposal which 
resulted from this lengthy study. 

The committee is publishing the Agency's proposal and several of 
the annexed papers, together with the text of section 1"7 and relevant 
committee report language, so that the result- of the AID study may 
be available to Member- of Congress and other interested individuals 
and organizations. 

The committee strongly believes that appropriate, or intermediate. 
technology, through its favorable impact on employment and -elf- 
reliance, can be an important means of implementing a development 
strategy which emphasizes participation and concentrates on improv- 
ing the lives of the poor majority of people in the developing world. It 
is the committee's hope, therefore, that this new proposal will be a 
useful and constructive step in focusing development efforts more 
sharply on the needs of the poor. 

Thomas S. Mono \\. Chairman. 


Foreword m 

Legislative history l 

Proposal by the Agency for International Development for a program in 

appropriate technology i 

I. introduction and background 5 

II. Outline of section 107 program 20 

in. Organization iff 

IV. Appropriate technology- Definition 72 


A.. List of attendees at appropriate technology meetings 7~> 

B. ••Private and Voluntary Organizations and Appropriate Technology," 


C. "Appropriate Factor Proportions tor Manufacturing in Less Developed 

Countries: a Survey of the Evidence," Lawrence .1 White in 

D. ••Policies to Encourage the I se of Appropriate Technology," Howard 

Pack 102 

K. "Appropriate institutions for Appropriate Technology," Gary Hansen, 

Bruce Koppel 2 18 

F. Extracts from papers on appropriate technology: 

"Appropriate Agricultural Technology: Assessment of Non-Farm 

impacts," dark Edwards 816 

"Appropriate Technology for Agricultural Development." John 

Balis 816 

c. Fxtract from "The Inducement of U.S. Firms to Adapt Products and 

Processes to .Meet Conditions in Less-Developed Countries.'' Roliert I! 
Stohaugh and Management Analysis Ceider 319 

Attachments to AID Proposal on Appropriate Technology not included 
in this document but available from \II> 

1. "Appropriate Technology study: Some Background Concepts, issues, 

Examples and Recommendations," Louis J. Goodman ami East-West 


2. "IT Organizations and the Indian Suh-Continent." Intermediate Tech- 

nology Development Croup. 

3. "Appropriate Technology in Latin America." VITA 

4. Report on A.I.D. -Private Sector Meetings <>n Section 107 



On December 20, L 975, the International Development and Food A 
sistance Act of 1975 was enacted into law as Public Law 94 161. Thai 
act introduced a new section 107 into the Foreign Assistance A. a <»t 
1961 that authorized the Agency for International Development i<» 
undertake a new effort in the Held of intermediate technology. Section 
1«>7 reads: 

Of the funds made available to carry out this chapter tor 
the fiscal years L976, I977,and I978,a total of $20,000,000 may 
be used for activities in the field of intermediate technolof 
through grants in support of an expanded and coordinated 
private effort to promote the development and dissemination 
of technologies appropriate for developing count tic-. The 
Agency for International Development shall prepare a de 
tailed proposal to carry out this section and shall keep the 
Senate Foreign Relations Committee and the House Interna- 
tional Relations Committee fully and currently informed 
concerning the development of the proposal. The proposal 
shall be transmitted to these committees no later than 
March 31, 1976, and shall not be implemented until thirty 
days after its transmittal or until passage by each committee 
of a resolution in effect approving its implementation. 
House Report H4-44-2 explained the various provisions of the Inter- 
national Development and Food Assistance At of L975 a- voted by 
the House Committee on International Relations. Regarding inter- 
mediate technology, that report state- : 

This new section of the Foreign Assistance Act of 1961 
permits a total of up to S-JO million of the funds made avail- 
able under section- 103- L06 over the 3-year period covering 
fiscal years 1!)7C>-7n to be used for grants to support an 
expanded and centralized private effort in the field of inter- 
mediate teclmolo<ry. 

The experience of more than a quarter century of develop- 
ment assistance programs overseas has clearly demonstrated 
that much of the technology used in the United State- and 
other industrialized countries i- not well suited to the 
economies of developing countries. It i- too big, it i- too expen- 
sive;, and it does not create the job- needed to absorb rapidly 
expanding labor forces in countries which already have an 
abundance of labor. It i< not appropriate for use on the very 


small farms and in the very small business enterprises that 
make up so much of the economic activity in the developing 

If the poor are to participate in development, as envisioned 
by the reforms enacted in the Foreign Assistance Act of 1973 
and by this bill, they must have access to tools and machines 
that are suited to labor-intensive production methods and fit 
their small farms, small businesses, and small incomes. They 
must have access to technology which is neither so primitive 
that it offers no escape from low production and low income 
nor so highly sophisticated that it is out of reach for poor 
people and ultimately uneconomic for poor countries — in 
short, intermediate technology. 

Accordingly, the bill adds this new section 107 to the 
Foreign Assistance Act of 1961 in order to impel AID to 
study proposals for an institute of intermediate technology 
and to develop a plan for expansion and centralization of 
private efforts in this field. It is not meant to limit the amount 
of AID funds used for other activities involving intermediate 
technology, which should be expanded as rapidly as possible. 

Among the objectives of such an increased effort in inter- 
mediate technology are the following : 

(1) To promote the development and dissemination 
of technologies appropriate for developing countries, 
particularly in the areas of agriculture and rural devel- 
opment, small business enterprise, and energy; 

(2) To identify, design, and adapt from existing 
designs, appropriately scaled, labor-intensive technology, 
and policies and institutions directly related to their use ; 

(3) To formulate policies and techniques to facilitate 
the organization of new small businesses ; 

(4) To engage in field testing of intermediate tech- 

(5) To establish and maintain an information center 
for the collection and dissemination of information on 
intermediate technology ; and 

(6) To support expansion and coordination of devel- 
oping country efforts in this field. 

These objectives are based on the experience of the several 
institutes of intermediate technology that are functioning in 
both industrialized and developing countries. 

The committee expects AID to begin immediately to 
develop its proposals for use of the funds authorized under 
this section, in conjunction with the private organizations 
now carrying out activities in intermediate technology and 
those which would be involved in a new effort, and to keep the 
committee fully informed during the planning process. 


Senate Report 94 (<»<;. the report by the Senate Foreign Relation! 
Committee on the same bill, outlines a similar purpose and intent con- 
cerning intermediate technology. Thai report reads as Follows: 

The new section 107 of the Foreign Assistance A.t of 1961 
permits a total of up to $20 million of the funds made availa- 
ble under sections LQ3 L06 over the 3-year period covering 
fiscal year- l!>7('» -78 to be used for grants to support an \ 
panded and centralized private effort in the field of inter- 
mediate technology. 

The experience of more than a quarter century of develop- 
ment assistance programs overseas has demonstrated that 
much of the technology used in the United State- and other 
industrialized countries is not well suited to the economii 
developing countries. It is too big, too expensive, and does not 
create the jobs needed to absorb rapidly expanding labor 
forces in count ries which already have an abundance of labor. 
It is not appropriate for use on the small farm- and in the 
small business enterprises that make up so much of the 
nomic activity in the developing world. 

The new section 107 is designed to encourage All) to place 
greater emphasis on coordinating and expanding private 
efforts to develop and disseminate technology which is appro- 
priate for the developing countries. It does not authorize 
additional appropriations. 


Section 107 of the International Development and Food Assistance 
Act of 1975 establishes a new grant funded, private program to stimulate 
the development and dissemination of appropriate technology in developing 

The legislation states: 

"Of the funds made available to carry out this chapter for 
the fiscal years 1976, 1977, and 1978, a total of $20,000,000 
may be used for activities in the field of intermediate 
technology, through grants in support of an expanded and 
coordinated private effort to promote the development and 
dissemination of technologies appropriate for developing 
countries. A.I.D. shall prepare a detailed proposal to 
carry out this section and shall keep the Senate Foreign 
Relations Committee and the House International Relations 
Committee fully and currently informed concerning the 
development of the proposal. The proposal shall be trans- 
mitted to the committees no later than March 31 , 1976 and 
shall not be implemented until 30 days after its transmittal 
or until passage of each committee of a resolution in effect 
approving its implementation." 

The deadline for submitting the proposal required by the 
legislation was extended to June 30, 1976. This paper is submitted 
to the Senate Committee on Foreign Relations and the House International 


Relations Committee in compliance with Section 107. It contains three parti 

1 ) an introduction and background; 2) description of the proposed 
goals and activities of the Section 107 program; and 3) a statement 
of the organizational steps A.I.D. proposes to take in carrying out 
the program. This proposal has been prepared by a work group 
representing all major A.I.D. bureaus and offices. 


The Private Sector Focus : Section 107 mandates an expanded and 
coordinated private effort to stimulate the development and dissemin- 
ation of appropriate technologies in developing countries. The 
Congressional Committees interpret the term "private effort" widely. 
Section 107 is intended to complement on-going A.I.D. programs by 
stimulating a variety of non-A.I.D. entities to undertake innovative 
programs in appropriate technology. This includes U.S. private and 
voluntary agencies, private business, individual citizens, not for 
profit organizations, and universities whether privately or state 
supported. Under the legislation, grants can be made directly to 
LDC private groups or publicly supported groups such as LDC R&D 
institutions, universities, or others. 

In reporting out the legislation, the HIRC suggested that we 
consult with U.S. private groups active or interested in appropriate 
technology. These consultations have beer a major part of our 
preparations for this report. 

Four day and a half workshops with representatives of U.S. private 


and voluntary agencies, businesses, and academic institutions were held 

in April this year. A larger meeting of private sector representatives 

was held in May. More than 100 individuals and representatives from 

private groups attended the meetings. 

These meetings generated a large number of suggestions on the 
goals and activities of an appropriate technology program. The program 
described in this report is drawn largely from these recommendations. 
The meetings constituted the first step in an on-going dialogue 
between the private sector and A.I.D. 

In addition to the meetings, A.I.D. commissioned a survey of 

eighty U.S. private and voluntary agencies to ascertain their current 

and prospective involvment in appropriate technology programs. The 

survey notes numerous instances of successful development and use of 

appropriate technology by private and voluntary organizations. It 

contains a number of recommendations for enhancing U.S. private agency 

capacity in appropriate technology. . 

The overall impression from the meetings and the survey is that 

the Congressional decision to engage the talents of the U.S. private 

sector as a complement to A.I.D. programs in appropriate technology 

was well taken. We have been impressed with the diversity of 

The list of attendees is appended as attachment A. 

"Private and Voluntary Organizations and Appropriate Technology" 
PASITAM - Bloomington, Indiana, May 1976. (Attachment B) 

perspectives and ideas which we have encountered and the high degree 

of interest shown in the program. 

Definition and Description of Appropriate Technology : The HIRC 

defines appropriate technology as "tools and machines that are suited 

to labor-intensive production and fit LDC small farms, small businesses, 

and small incomes." Morawetz defines appropriate technology as the set 

of techniques which make optimum use of available resources in a given 

environment . 

In both defintions, appropriateness is determined by the environ- 
ment. For most developing countries, this i6 , of course, an environ- 
ment of scarce capital and limited numbers of highly trained personnel. 
Unskilled and semi-skilled labor is abundant. The majority of 
productive enterprises are small. Four-fifths of the farms in 
developing countries are 12 acres or less; most of the businesses 
and industrial firms of the developing world are equally small. 
Family patterns, social structures, and cultures vary widely. 

Despite this, much of the technology which has been utilized in 
LDCs was developed in Western countries which have quite different 
endowments of capital and labor, skilled workers, size of markets 
and enterprises, consumer incomes and tastes, and credit and 
distribution infrastructures. 

Use of this capital intensive technology has been identified as 

David Morawetz, "Employment Implications of Industrialization in 
Developing Countries: A Survey", The Economic Journal , September, 1974 


a contributor to unemployment in developing countries. Capital-labor 
ratios for new investment projects in LDCs are frequently $15,000 or 
more per worker while the capital available per worker is less than 
a tenth of this figure. The high capital cost of modern technology 
has also contributed to the development of dual economies — small, 
relatively well-off enclaves of high productivity and well-paid 
workers side by side with relative stagnation among the larger 

In this context, a conviction has grown that developing countries 
need technologies which require little capital per worker (labor 
intensive), are efficient on a small scale, are easily serviced and 
maintained, do not require high levels of education or training to 
operate, and utilize locally available materials: In short, 
technologies which are appropriate to the environment of developing 

This prescription has not developed without controversy. Some 
assert that capital-intensive technologies are highly efficient and 
produce relatively higher returns per unit of investment. They state 
that in most sectors there are, in fact, few practical alternatives 
to modern technology. The so-called spectrum between traditional 
and modern technologies is really devoid of efficient techniques 
with alternative capital-labor ratios. 

Quite a volume of literature has grown up around this controversy, 
In preparing this proposal, A.I.D. commissioned a survey of this 

literature which indicates that, while the issues are complex and vary 

with circumstances, the view that LDCs are currently condemned to high 

capital-labor ratios because there are no efficient alternatives simply 

is not consistent with the evidence. 

The range of technologies available and in use throughout the 
world is much wider than has been thought. This is true for the maj- 
ority' of industrial products (particularly those with a technical life 
of more than 20 years), agriculture cultivation and harvesting techniques, 

excavation, earth moving, and some road building and construction 

techniques, means of transport, and a variety of service activities. 

For instance, the work by a group of economists at Strathclyde 

University (Scotland) on the sugar and shoe industries in India, 

Ghana, and Ethiopia demonstrates that over a wide range of technology, 

both individual profits and employment are higher if factor proportions 

reflect true factor costs. In these countries, production efficiency 

can be obtained through more intensive use of labor. Other studies 

show the possibility of expanding the effective use of appropriate 

technology in ancillary process, such as handling, packaging, 

Lawrence J. White, Appropriate Factor Proportions for Manufacturing in 
Less Developed Countries: A Survey of the Evidence , April, 1976, 
Attachment C 

ILO , Employment, Growth and Basic Needs: A One-World Problem , Geneva 
1976 , p. 144. 


transporting and storage. 

This is not to say that capital-intensive technologies are 
invariably inappropriate in developing countries. In some circum- 
stances, efficient, labor-intensive technologies may not exist (e.g. 
petro-chemical industries) or competitiveness in export markets 
may require precision machine-made products. Developing countries 
require a mix of technologies. The problem in many developing 
countries, however, is that the current mixture is felt to be 
over-rich in a capital-intensive direction to the detriment of 
both employment and output growth. 

In terms of the competitiveness of the small-scale sector 
vis-a-vis large, capital-intensive enterprises in LDCs, White points 
out that comparisons of the relative efficiency of small and large 
firms are extremely difficult since product characteristics are 
usually different. In addition, larger firms often produce more of 
their own inputs or do some of their own distribution, both of 
which alters their capital-labor and capital-output ratios. 

However, there is anecdotal and other evidence supporting the 
robustness of small scale industry. The ILO states, "small units 

Studies tend to show that the scope for use of alternative technologies 
is narrower if the characteristics of the product are fixed. If 
consumers demand drip dry, color fast, cotton/dacron shirts, the scope 
for substitution of technology in a labor intensive direction is more 
restricted than if consumers will accept cotton shirts. To this extent, 
the problem of appropriate technology is also one of consumer demand, 
which may in part be a function of income distribution. 


generally compare favorably with large scale units on the efficiency 

indicators of particular relevance — capital-output ratios, capital 

surplus, yield per acre of land, and propensities to save and invest." 

Pack states that "analysis typically reveals that small firms are at 

least as efficient as the larger ones in the sense that if both were 

to face the same socially relevant factor prices .... the average 

cost of production in smaller firms would be competitive with that 

of larger firms, indeed often lower." 

Neither small nor large scale industries have intrinsic 

advantages across the board. Small scale industry typically employs 

50% or more of the manufacturing work force in LDCs, is labor intensive, 

and hence is a prime user of appropriate technology. 

In summary appropriate technology may be defined as follows: 

— In terms of available resources, appropriate technologies are 
intensive in the use of the abundant factor, labor, economical 

ILO, op. cit., p. 147. 

Howard Pack, "Policies to Encourage the Use of Appropriate Technology" 
Paper prepared for A.I.D., April, 1976, Attachment D 

A more rigorous definition of appropriate technology is appended to 
this paper. Other terms which have been used to describe the same 
concept include optimal, progressive, intermediate, low-cost, 
middle level and light capital technology. The term "intermediate 
technology" was coined by E.F. Schumacher, the British economist who 
helped formulate the concept in the mid-1960 1 s. Gradually, intermediate 
has given way to appropriate. Among LDCs, the word "intermediate" h3s 
come to connote second-best or second-hand. The term appropriate has 
wider currency and has been adopted by a resolution in 1972 of the 
UNESCO,. and later by the ILO and other international agencies. 

74-665 O - 76 - 2 


in the use of scarce factors, capital and highly trained personnel, 
and intensive in the use of domestically-produced inputs. 

— In terms of small production units, appropriate technologies 
are small scale but efficient, replicable in numerous units, readily 
operated, maintained and repaired, low-cost and accessible to low- 
income persons. 

— In terms of the people who use or benefit from them, appropriate 
technologies seek to be compatible with local cultural and social 

Appropriate technology includes software as well as hardware. It 
includes health delivery systems, educational methods, credit systems 
and management methods which reduce the need for administrative 
overhead and highly skilled personnel. The concept of appropriate 
technology also includes products since shifts in the product mix 
or in quality standards can improve the utilization of a country's 
factor endowments. 

Appropriate technologies, need not - indeed can not -maximize 
all the above criteria simultaneously. For instance, not all 
appropriate technologies are simple in their construction or in the 
degree of technical and engineering knowledge required to produce 
them. Solar energy equipment and concepts are highly sophisticated 
as are electric power and improved batteries which might be used 
to provide energy in remote areas. 

Thus stated, the definition of appropriate technology is broad. 
For operational purposes the Section 107 program needs to concentrate 
on specific fields and problems within this broad area. The program 
described in Part II below suggests such a concentration. 


Appropriate Technology in Developing Countries : A.I.D. commissioned 
preliminary surveys of existing appropriate technology activity in Asia, 
Africa, and Latin America. These surveys are appended to this report, 
as Attachments H, I, and J. 

The picture in developing countries, as one would expect, is 

mixed. There is a substantial group of skeptics who see appropriate 

technology as "technological imperialism", a way in which Western 

nations are trying to keep poor countries in their place so that they 

can retain access to the energy and resources needed to maintain high 

consumption Western life styles. At a recent meeting on the employment 

problem in Latin America sponsored by the ILO, a number of Planning 

and Finance Ministers asserted that appropriate technology was a means 

of keeping developing countries dependent on the United States for 

imports of modern technology. While not rejecting the concept of 

labor-intensive technology entirely, they stated that Latin America 

would continue to produce the most modern technologies. 

Much of the economics and politics in developing countries favors 

capital-intensive technology. Public policy with respect to foreign 

exchange rates, licenses for imported materials and components, interest 

rates, wages, allocation of investment funds and others are often biased 

in favor of larger, capital-intensive methods. Regulations tend to favor 

large enterprises in metropolitan centers over small businesses and 


One indication that the penchant of government officials for the most 
modern equipment may not extend throughout society is this wall poster 
from India: PROTEST MEETING - Against Forcing Computer into South 
Eastern Railway, under Armed Police Guard despite Mass Protest of Workers 
and Employees. Demonstration - Indian Association Hall - January 13. 


entrepreneurs in small cities. Years of training in Western universities 
or in LDC universities with Western curriculums has yielded "engineering 
bias" toward Western technology among educated elites. Many of the 
policies above have political roots and are difficult to extirpate. 
Nonetheless, while no governments have adopted appropriate technology 
as a national policy, there are ministries and public agencies in many 
countries that are sponsoring appropriate technology organizations and 
appropriate technology work. 

In Africa, five countries have appropriate technology organizations 
which are intended to become nation-wide focal points - Nigeria, Tanzania, 
Ethiopia, Ghana, and Kenya. A sixth such center is now being planned 
in Botswana. In addition, the survey commissioned by A.I.D. identified 
more than a hundred organizations involved in appropriate technology 
in 32 African countries. These organizations include community 
development groups, university engineering and agricultural faculties, 
research institutions and technical centers, and small industry 
extension units. 

In the ten countries surveyed in East and South Asia, we identified 
25 public agencies and universities involved in appropriate technology 
work plus dozens of smaller, mostly private organizations. Pakistan, 
India, and Bangladesh all have appropriate technology units in one of 
their central ministries. 

In Latin America, government support of appropriate technology 
is just beginning. One of the first publical ly-sponsored organizations, 


in Honduras, is being planned as this report is written as part of an 
A.I.D. rural development project. However, the survey of Latin America 
identified more than 300 organizations, nearly all private, involved 
in appropriate technology in Latin countries. Forty-six of these have 
a very high and direct involvement in appropriate technology. 

The work being done by these public and private organizations 
covers a spectrum of appropriate technology. Research and design work 
includes farm mechanization, food storage, preservation and processing, 
brick-making and other building techniques, alternative energy, textilei 
ceramics, foundries, coconut products, glue, salt, electro-plating, to 
name just a few. In some countries, such as Kenya, Sri Lanka, and 
Philippines, appropriate technology organizations are involved in 
industrial extension, financing of small business, market development, 
and information systems. 

This array of organizations and activities confirms that there 
is a base for the Section 107 program to build on in developing and 
disseminating appropriate technology in LDCs. 

Other Donor Activity : A.I.D. has not conducted a survey of 
other donor programs in appropriate technology. The following 
derives from informal contacts made while preparing this report. 

The ILO is perhaps the leader among international agencies. 
The employment studies conducted by the ILO in Colombia, Kenya, 
Philippines and other nations have had a major influence on the 
development of the concept of appropriate technology. The ILO is 


now doing an evaluation of small scale industry projects which may 
prove useful to the management of the Section 107 program. 

The World Bank is paying increasing attention to the appropriateness 
of the technology included in Bank projects. In Egypt, for example, a 
loan to modernize cotton ginning incorporated labor-intensive rather 
than capital-intensive machinery. Water projects in Bombay, India 
and several cities in Colombia are based on a capital-saving technology 
for water filtration. A recent loan to Yugoslavia is aimed at small-scale 
agro-industries. Loans for slaughter houses based on labor-intensive 
techniques have been approved for Honduras and Cameroon. The Bank 
has done extensive work on labor-capital substitution in road 

The Peace Corps has considerable experience in village-level 
appropriate technology and is preparing training materials based 
on its work. These materials will be made generally available. 
The principal subjects on which the Peace Corps is now working are 
small farm grain storage, health education, construction of buildings 
and roads, forestry and conservation in arid lands, freshwater fisheries, 
and well construction. Peace Corps volunteers are also developing a 
program of bio-gas plants in Nepal. 

In terms of other agencies, IDRC in Canada is funding Technonet/ 
Asia, an experimental small scale industry extension service operating 
in a half dozen Asian countries. UNIDO is developing plans for a 
Clearing House on Industrial Information which may complement the 


Section 107 program. 

Overall, the state of the art among other donors and agencies 
seems roughly parallel to that in developing countries and A.I.D. 
itself. There is some official interest in the subject and pockets 
of activity in all agencies. There is need for greater communication 
and coordination among agencies working on appropriate technology 
and this will be one of the aims of the Section 107 program. 

Current A.I.D. Programs in Appropriate Technology : A.I.D. has a 
diversified portfolio of projects directed toward development and use 
of low-cost, labor-intensive technology. This includes the small-scale 
agricultural equipment project begun at the International Rice Research 
Institute in the Philippines and currently being extended to Thailand 
and Pakistan. It includes the small industry program run by the Georgia 
Institute of Technology. It also includes projects in low-cost housing, 
low-cost roofing, conversion of saw dust and other agricultural wastes 
to energy, construction of simple grain storage facilities, solar kilns 
for drying timber, village level food processing, non-formal education, 
and a major program in low-cost health delivery systems. There are 
about 40 current projects which directly bear on development and 
dissemination of appropriate technologies. 

In addition, there are many projects in which appropriate technology 
plays a role. For instance, A.I.D. is currently helping develop 
agricultural research capabilities in more than two dozen countries. 
All of these are concerned with turning out technology which meets 


the conditions of small farmers. Much of A.I.D.'s economic research 

on questions of employment and development strategy bears on the 

question of choice of technology. 

The Congress has indicated that it expects A.l.D. to continue 

activities in appropriate technology in addition to the monies 

allocated for Section 107 grants. The House Appropriation Committee 

states that it expects such activities "to account for a steadily 

increasing share of A.I.D.'s development budget... beyond the modest 

allocation under Section 107." 

There are two main areas for expansion. One is to expand funding 

for projects such as those listed above which are directly concerned 

with assisting LDC's develop and utilize appropriate technologies. 

Such projects would derive from sector or other analysis of country 

needs and would be part of the on-going development assistance program 

for the country. A second area for expansion is to insure that questions 

of choice of technique are carefully attended to in all A.l.D. projects, 

whether they are titled appropriate technology projects or not. Peter 

Timmer's analysis of the choice of rice milling technology in Indonesia 

indicates that A.l.D. financed engineers recommended capital-intensive 

technologies even though their own economic analysis showed that more 

labor intensive techniques would generate both higher returns and 


Foreign Assistance and Related Programs Appropriation Bill, 1977, 
Report of June 3, 1976, p. 14. 


more jobs. The need for rigorous consideration of choice of 

technique runs throughout A.I.D.'s program. 

Expansion of A.I.D. projects to develop and disseminate appropriate 

technology in LDCs implies a need to develop criteria to distinguish 

between technical assistance activities which A.I.D. might fund 

directly and those which might be funded through Section 107 grants. 

We have not attempted to spell out these criteria in this paper. 

This should be done as the goals and activities of the Section 107 

program are clarified, and as the new Section 107 organization 

develops demonstrated competence in given areas. 


C. Peter Timmer et al, Choice of Technology in Developing Countries; 
(Some Cautionary Tales), Harvard University, 1975, pp. 16-26. 



The program outlined in this section reflects the priorities 
and recommendations for action expressed in A.I.D.'s April and 
May meetings. It is an initial configuration. It has been drawn 
from recommendations of U.S. private groups and tailored by A.I.D.'s 
internal judgment as to priorities for action. Several steps are 
needed to sharpen it further. 

First, consultations with developing countries are required. 
One of the first steps taken by the management of the Section 107 
program should be to hold participatory planning meetings with 
LDC groups active or interested in appropriate technology. These 
meetings should help clarify priorities and determine opportunities 
for action. 

Second, mote detailed A.I.D. - private sector planning is 
needed for each section of the program. The meetings produced a 
preliminary overall design with five main areas of activity. 
Further joint planning will be needed in each area and this may 
rebound to alter the overall design. 

The outline below describes a comprehensive program with 
funding of approximately $10 million dollars per year. This 
program will not spring to life full-blown at some date in the 
future, but will necessarily start small. Hence, this program 
can be considered a guide for future development. The ultimate 


shape of the program will be determined by both planning and action- 
pursuing promising activities and winnowing out less successful ones, 

B. Goals and Policies for Section 107 

Goals : The over-all goal for the program expressed at the 

April-May meetings is to assist developing countries strengthen 

their own capacities to develop, adapt and utilize appropriate 

technology. Development of indigenous capacities for appropriate 

technology involves policies and institutions as well as hardware. 

It includes management, tax structures, marketing infrastructure, 

education, financial institutions, and other concerns. 

This goal is ambitious for a $10 million per year venture. 
Yet - as was mentioned in all our consultations - development 
and dissemination of appropriate technology in and by LDC's is 
a nascent endeavor. There are no clearly lit or conventional 
paths to accomplishing the job. A great deal of experimentation, 
learning from experience, and innovations in approaches to the 
problem as well as specific innovations in technology are required. 
It is here that the primary contribution of the Section 107 program 
to the larger problem of appropriate technology should be found. 

The program is intended to serve, not just as a funder of 


There was a clear consensus that while development of new tech- 
nologies or transfer of technology from developed to less developed 
countries or among developing countries may be a part of the program, 
this is not the goal of the program in the first instance. 


privately run projects, but as a source of experimentation, 
evaluation and ideas in appropriate technology which can be 
picked up by LDC governments and aid donors or be spread by 
private enterprise. This is a basic reason for using A.I.D. funds 
under Section 107 to engage and stimulate the talents of a wide- 
range of private U.S. and LDC groups. The Section 107 program 

is seen as a forum for innovation — a provider of yeast to 

leaven the larger efforts of aid donors and LDC governments. 

In this context, the operational goal of the program can 

be stated as: 

— carry out innovative projects in appropriate technology 

in LDC's which enhance the on-going capacities of developing 

countries to develop and utilize appropriate technology; 

advance the state of practical knowledge about the problems 

of appropriate technology and develop through trial and 


As an illustration, we have an application from a U.S. small industry 
development group which is linked with a group in the Philippines. 
They propose a pilot project to provide village or household potable 
water systems using a ceramic filter recently developed under a Swiss 
government research contract for their army. The filters are report- 
edly extremely effective and inexpensive; they use locally available 
materials and could be the basis for a local industry. The pilot 
project estimated at $100,000 would be to see if the filters can be 
fitted into- a system which meets local needs. If successful, 
dissemination might be by the Philippine government and/or by private 

The significance of this illustration lies in the fact that it picks 
up a little known technology, combines a private U.S. group and a 
Philippines group with local knowledge, and seeks a quick acting, 
flexible source of funding for a pilot effort. 


evaluation, surer means for assisting developing countries 
develop, adapt and utilize appropriate technologies. 
It is important to stress that pursuit of this goal in a 
particular country or project should begin - not with consideration 
of technology - but with identification of real needs of people in 
their local environment. Countries do not face appropriate technology 
problems in isolation. They face development problems of which 
technology is one part. Appropriate technology is part of a 
multi-disciplinary approach to development problems and it is the 
problems which constitute the analytical foundation for appropriate 
technology programs. 

For purposes of program management the goal stated above will 
need to be refined into specific project goals whose accomplishment 
can be evaluated. It also needs to be linked to a higher order of 
goals which derives from the aid legislation itself and forms the 
backdrop for all Section 107 activities. As expressed at our April- 
May meetings, this is to: (1) help contribute to broad based growth 
of jobs and output in LDCs through more effective use of resources; 
(2) assist the poor participate in development by raising their 
productivity and standards of living; and (3) help foster, through 
technical and economic growth, national independence and self- 
reliance. This umbrella of principles animates all Section 107 


Program Policies : As a matter of policy, the program will 
focus on the small scale sector in LDC's — small farms and small 
and medium scale enterprises. It will focus on appropriate tech- 
nology to provide low cost services and consumption goods for 
the poor. The concentration on the small scale sector is not 
intended to be exclusive. In terms of jobs and improving income 
distribution, the program is also concerned with appropriate 
technical choice in larger enterprises and government public 
works as well as with exploiting subcontracting and other 
complementarities between the large and small scale sectors. 
In addition, the focus on the small scale sector should not be 
calcified as exclusive attention to the smallest farms or 
enterprises. These may not be productive users of appropriate 
technology. The point is that, while focusing on the small 
scale sector is basic to the program, the interpretation of 
this policy will need to be flexible. Fidelity to the concept 
cannot be ensured by definitions, but vill be the responsibility 
of program management. 

The program is expected to be oriented largely though not 
exclusively toward rural areas. Included are villages, market 
towns, and those small cities which are centers of rural regions. 
Although this policy was not endorsed by all participants in A.I.D.'s 
meetings with private groups, we believe it is operationally sound. 
The primary focus of the present U.S. assistance legislation and many 


(not all) of the private U.S. agencies concerned with appropriate 
technology is toward rural development. Again, this emphasis on rural 
areas is considered a predominant program direction, not an exclusive 
focus. For instance, there is some feeling that the export oriented, 
traditional goods sector may be a natural entry point for appropriate 
technology programs in some countries and while this industry may not 
be rural, it may be a base from which a more rural orientation can 
be developed. 

As a matter of policy, specific attention will be given to 
the role of women throughout the program. 

In work overseas, emphasis will given to working with existing, 
qualified developing country institutions concerned with appropriate 
technology rather than creating new ones. This policy was strongly 
recommended by the private groups consulted during our April workshops. 
As described in Section I, there are many institutions in developing 
countries already working on or around appropriate technology. 

As a matter of policy we believe grants under Section 107 
should be given to private or publicly-supported institutions 
in developing countries regardless of whether A.I.D. has a 
Mission and a bilateral program in the country. However, by law 
A.I.D. can not provide direct assistance to more than 40 countries. 
There is a fairly complex set of considerations which apply in 
determining what constitutes direct assistance and we recognize that 
a blanket application of this policy is not possible. It depends 


on legal judgments which will be made on specific proposed grant 
activities when the program gets underway. 

As a matter of policy, we believe grants under Section 107 
should require prior notification but not prior approval of 
Missions and Embassies in developing countries. 

Emphasis will be given to maintaining close links with U.S. 
groups concerned with appropriate technology for the United States. 
Efforts will be made to encourage a return flow of information and 
experience from LDC efforts into the United States. 

C. Program Areas Under Section 107 : 

As stated above, five areas for activity under the program 
emerged from the April-May meetings. These are: 

1. Communication and coordination : Programs to gather and 
evaluate past and present experience with appropriate technology; 
to improve communication among practitioners of appropriate 
technology; and provide both information about selected specific 
low-cost technologies, and models to be tested and adapted. 

2. National policies for appropriate technology : Efforts to 
encourage LDCs to adopt economic and other policies which facilitate 
choice of appropriate technology by private entrepreneurs. 

3. Appropriate technology projects in LDCs : Grant projects in fields 
such as assisting LDC small businesses, assisting local R&D units, 
farm machinery and food processing, health, and energy. This is the 
main business of the program; the program will be organized around 


six or so types of projects or functional areas, e.g. agricultural 
machinery, small business enterprise, health, energy. 

4. Education : Projects to assist LDCs develop innovations in 
education systems which increase the relevance of their education 
investments for appropriate technology. 

5. U.S. business : Programs to find means to involve U.S. businesses, 
on a case-by-case basis, in appropriate technology programs in 
developing countries. 

Further explanation of these program areas follows. 

1- Communication and Coordination- 

This is a key function for a program which seeks to expand 
knowledge about alternative technologies and the do's and dont's 
of mounting programs to develop and disseminate appropriate tech- 
nology. The private groups consulted during A.I.D.'s April and May 
meetings recommended strongly that the starting point for an 
expanded program should be to develop existing sources of information 
about appropriate technology, to encourage more communication among 
groups active in appropriate technology, and to link them to potential 
LDC users. Nearly one-third of the action recommendations we received 
during our April and May meetings concerned the need for better infor- 
mation. The immediate aim will be to identify and organize existing 
sources of information rather than create new data banks or facilities, 
For instance, the PASITAM survey of private agencies indicates 
that many of them have unique experiences with appropriate 

74-665 O - 76 - 3 


technology, but they lack the resources to communicate this 
experience to others. 

Improving communications among organizations and groups 
active in appropriate technology is one aim of this part of the 
program. Another is to improve understanding and acceptability 
of appropriate technology among a wider audience of LDC and DC 
opinion leaders and policy makers. One of the barriers to expanding 
activities in appropriate technology in LDCs is widespread lack of 
understanding or negative attitudes toward the concept. Stated 
simply, some selling of appropriate technology is necessary. This 
requires - not crude proselytizing - but marshalling and presenting 
better information about appropriate technology in a variety of 
formats for different audiences. 

A third aim of this aspect of the program is to develop 
better coordination and division of labor among groups and 
institutions active in appropriate technology. We received many 
recommendations concerning the need for an international federation 
of appropriate technology organizations. We understand that ITDG 
in London and the ILO are interested in this concept. A long-range 
goal in this connection would be to strengthen developing country 
abilities to collaborate among themselves in appropriate technology 

Some of the activities suggested during our April workshops 
for carrying out this segment of the program are listed below: 


(1) Surveys and case studies of existing or completed 
projects (successful or unsuccessful) to develop 
and disseminate appropriate technology. 

(2) Video tapes or other visual media to capture the 
on-going experience of practicing appropriate 
technology groups. Using existing groups to teach 
other appropriate technology groups. 

(3) Travel grants - Funds for cross-fertilization of 
ideas through travel of practitioners, government 
officials, or individual entrepreneurs. 

(4) Workshops and seminars for government and private 
persons in both DCs and LDC's. 

(5) Grants to U.S. and developing country organizations 
involved with appropriate technology to expand their 
capacities to communicate their experience to others. 

(6) Exchange of proven and prototype equipment. 

2-National policies for appropriate technology- 

Government polices have a critical impact on widespread adoption 
of appropriate technology by private entrepreneurs. These include 
policies which affect the prices faced by entrepreneurs for labor 
and capital, policies on credit and finance, and regulatory policies 
affecting small businesses. The types of policy actions which are 
open to government to encourage adoption of more socially useful, 
appropriate technology are extremely sensitive politically and include: 

(1) Undertaking programs to increase the supply of wage 
goods (e.g. food) in order to reduce their price. 

(2) Limiting the growth of wages paid by the government. 
These often serve as a guidepost for private sector 

(3) Removal of the minimum wage, particularly for new 


employees, or reducing it to the levels prevailing 
in the craft sector. 

(4) Limiting fringe benefits such as social security. 

(5) Maintaining the official exchange rate at its equilibrium 
value, i.e., that at which the supply and demand for 
foreign currency will be equal, without imposition of 
tariffs, administrative limits on imports and so on. 
Alternatively, and less desirably, tariffs on imported 
capital goods could be introduced to raise their cost 

in domestic currency. 

(6) Removal of interest rate ceilings. 

(7) Elimination of tax incentives which reduce the cost 
of utilizing capital in production. 

(8) Elimination of the licensing of imported raw materials, 
a practice which has often been shown to discriminate 
against small, labor intensive enterprises. 

Two comments can be made on these policies: First, it would 
be difficult to construct a more politically contentious set of 
policies. Second, with the exception of individual economists at 
our meetings, few of the U.S. private groups we talked to see 
themselves as working on this sort of macro-policy issue. 

This presents a problem for the program. Although it is possible - 
to fund micro projects to develop and disseminate appropriate technology 
in LDCs, such efforts are probably unsustainable over time unless the 
environment for use of appropriate technology is favorable. This 
requires competition in product markets and reduction of distortions 
in relative factor prices. 

In this context, we believe one of the goals of the program should 
be to find better means to encourage planners and policy makers to 


design economic and instituti. which facilitate u 

appropriate technology by private entrepreneurs. 

As an example of techniques which might prove useful in this 

regard, Pack recommends using Section 107 funds to systematically 

catalop alternative economically efficient techniques for various 

industries. For example, Pack shows the aggregate employment and 

capital effects of four weaving techniques as follows: 

Type of Loom Requirements per Capital /Labor Investment Additional Percentage 

100 million square Ratio (2) (1) Funds Saved Indirect Increase 

yards per annum Using Employment Output 

(1) (2) (3) Lancashire 

Manyears Investment (4) (5) (6) 

Lancashire 2,180 $ 35,820,000 

Battery 1,110 71,635,000 

Air jet 820 78,777,000 

Sulzer 510 150,063,000 

Columns 1 and 2 indicate the inputs required to produce an 
additional 100 million square yards of material. Column 3 indicates 
the capital -1 abor ratio associated with each type of process. Column 
4 shows the amount of investible funds saved by adopting the Lancashire 
loom, the least capital intensive one, rather than each of the others. 
Column 5 indicates the additional employment which could be generated 
by investing the funds thus saved in an activity whose capital-labor 


Pack, op. cit., (Attachment D) 

$ 1,645 


$ 35,815,000 












ratio was no greater than that of the Lancashire loom. These must 
be added to the differences shown in Column 1 to derive the total 
difference in employment. Finally, Column 6 presents the percentage 
increase in output which could be generated by investing the saved 
funds in additional weaving capacity. 

The table shows that using the Lancashire loom and investing the 
capital saved from not using the Sulzer loom, would produce about 
71,000 more jobs and 319% more output than if the Sulzer loom was used. 

Pack states that such comparisons in other industries are likely 
to yield equally large benefits and that these calculations may be 
helpful in stimulating LDC governments to consider the policy changes 
needed to realize these benefits. 

Other activities suggested at our meetings to facilitate policy 
changes in LDCs include: 

— Grants through private U.S. entities or direct grants to LDC 

institutions such as universities, science policy councils, 

and ministries of planning, industry or agriculture to help 

develop their capabilities for analyzing and choosing alternative 

technologies and for considering effect of alternative 

technologies on national economic and social development. 


A recent study in India financed by the Ford Foundation (Tata Bconoaic 
Consultancy Services, "Industry in the Second India", Orient House, 
Bombay, 1975.) projects industrial growth through the year 2000 
assuming alternative growth strategies. Were the product mix and the 
technologies employed selected to increase the output to capital ratio, 
it should be possible to virtually eliminate underemployment and increase 
the GNP by 80% in the year 2000 over a projection of the currently 
employed strategy of relatively low output to capital industry, 
(information supplied by Joseph Stepanek.) 


— Travel and consultation grants to facilitate interchange 
of planners and policy makers among developing countries. 
For instance, visits to countries which have active 
appropriate technology policies by officials of countries 
which are considering such policies and programs. 

— Identification of gaps in knowledge about appropriate 
technology and alternative policy choices and prep- 
aration of research agendas for possible funding by 
other agencies. (Funds from this program would not be 
used for research, but could be used to stimulate needed 
research financed by others.) 

3-Selected innovative projects to develop and disseminate appropriate 
technology in developing countries - 

This is the key activity under Section 107 in terms of the goal 
of the program — developing innovations in appropriate technology, 
testing innovative approaches to appropriate technology, and enhancing 
the on-going capacities of developing country governments, institutions 
and private sector to develop, adapt, and disseminate appropriate 

Although there is virtue in diversity, the program will need 
to concentrate on certain categories of problems and activities. 
Areas for concentration suggested so far include: 


— Agricultural machinery and rural based food processing industries, 

— Projects to assist small and medium scale enterprises, part- 
icularly in rural areas; facilitate utilization of appropriate 
technology for small and medium scale enterprises by channeling 
appropriate assistance to them in management, credit, marketing, 
as well as in technology. 

— Energy for rural areas; cooking fuels. 

— Health, sanitation. 

— Low-cost housing 

— Projects to strengthen capabilities of LDC institutions for 

identifying local problems and developing and disseminating 

appropriate technology in response to those needs. For 

instance, assistance to LDC research institutes or industrial 

extension services. 

Some of these areas are broad and need further sharpening. Other 

areas suggest themselves: rural works, construction. One of the 

prime tasks of the program management will be to define the 

portfolio of projects as a result of consultations with 'eveloping 

countries and A.I.D. missions, and further planning with :he private 



For a perceptive analysis of the problem of strengthenir. LDC 
institutional capacities in appropriate technology, see .e paper 
by Bruce Koppel and Gary Hansen: Appropriate Institutions for 
Appropriate Technology, April, 1976, Attachment E. 


An important point here is that at the project level, the 
multi-disciplinary aspects of appropriate technology come to the fore. 
As stated earlier, technology is only an ingredient in the solution 
of a particular development problem. The relative role of technology 
in a project depends on the nature of the problem and the context of 
the target group. This merely reiterates the truism that any specific 
project in an LDC must start with identification of local needs, 
consider the many ingredients necessary to solve the problem, and 
place the technology involved in its proper role. 

4-Education and training- 

The goal is to assist developing countries develop educational 
innovations which increase the relevance of their educational 
investments for appropriate technology. 

There was a strong feeling at all the meetings that the manner 
in which LDC education systems are planned, curricula designed, and 
educational pedagogies and technology chosen is a critical part of 
fostering more appropriate technological development. There is 
evidence that curriculums in developing countries in fields such as 
engineering are oriented to Western standards, overly academic, or 
discipline oriented. Also, the formal education system reaches only 
a fraction of the populace giving rise to needs for grassroots training 
methods and programs. 

While there was consensus on the problem - sufficient to warrant 


its inclusion as one wing of the program - there were relatively few 
concrete ideas on penetrating the problem presented at the April-May 
meetings or in the papers we commissioned. Funds would be spent on 
pilot or innovative efforts which would complement or feed into 
larger programs. Some action ideas suggested at the meetings were: 
— Grants to assist LDC institutions develop model appropriate 
technology design and lab courses in engineering and technology 
— Grants to develop multi-disciplinary programs in "development 
technology" at developing country universities. Basic 
technological and engineering skills would be one aspect of 
such programs, but it would also include micro and macro 
economics, industrial and rural sociology, regional develop- 
ment, and R&D and extension management. 
— Development of pilot programs for management training and 
on-the-job technical training. 

5-Involve U.S. Business in Appropriate Technology Programs in LDCs- 

The goal is to involve U.S. businesses in development and 
dissemination of appropriate technology in developing countries 
either by facilitating direct investments or through organized 
transfer of relevant business management experience and technology. 

There was a consensus among the participants at the meeting 
that U.S. businesses should play a role in the appropriate technology 
effort. It was noted that many U.S. small businesses employ technology 


and managerial practices which are relevant to kindred businesses in 

developing countries. However, there wa6 little agreement at our 

April-May meetings on how U.S. companies could be be6t involved, 

particularly if the aim is a long-term, unsubsidized involvement 

which profits the companies. 

To gain a better picture of possible U.S. business involvement 

in appropriate technology programs, A.I.D. commissioned an analysis 

of U.S. investments in developing countries, particularly evidence 

regarding the propensity of U.S. firms to make changes in product 

design or manufacturing processes in response to LDC conditions. 

The survey indicates that most products manufactured in 
developing countries by U.S. firms are generally mature and well- 
established. Examples might be non-leak proof batteries or 
or inexpensive motor scooters. The design and technology for 
these products has been well-worked out and the market for them 
in the U.S. and Europe is declining. Firms are generally loath to 
invest funds and engineering time in changing these product designs 
for developing country conditions. This tendency is reinforced by 
the strong preference for "Western" goods which often prevails in LDCs. 
Locally manufactured goods with Western brand names can often 


"The Inducement Of U.S. Firms To Adapt Products And Processes To Meet 
Conditions In Less Developed Countries", Robert B. Stobaugh, Harvard 
Business School, with Management Analysis Center, Inc., Cambridge, 
June, 1976. 


command premium prices which further reduces the incentive for 
product adaptation. 

The survey concludes that development or adaptation of 
simplified, but modern, products for low income markets by large 
multinational enterprises has not occurred often in the past 
and does not seem likely to expand significantly in the future. 
These firms are more interested in developing new products for 
high-income markets. The report notes, however, that development 
of such products might prove fruitful for small engineering firms. 

The evidence on the willingness of U.S. firms to utilize x 

labor-intensive manufacturing processes in LDCs is mixed. White 

reports that a number of surveys of multi-national corporations 

by Reuber (1973), Hughes and Seng (1969), Baranson (1971), 

Yeoman (1968), and Gregory and Reynolds (1965) have concluded that 

only a modest amount of technological adaptation has taken place, 

and that has been mostly in response to lower volumes, not local 

factor costs. 

But there is an interesting paragraph in Boon (1975, p. 270) 

that is worth recounting at some length. He describes an interview 

at an engine plant owned by a multi-national corporation in Mexico. 

At the beginning of the interview, the management assures Boon that 

the Mexican plant uses exactly the same technology as that used in 


Lawrence White, op. cit., pp. 31-33, (Attachment C). 


the parent plant in the developed country. But as Boon tours the 
factory, it becomes clear that the factor proportions are different. 
The main machinery process are automated, but second-hand equipment 
is used. And all of the auxiliary processes, like packaging, handling, 
transporting and storing, are done much more labor intensively. 

White feels that any researcher who looks around a multi- 
national corporation in an LDC is likely to find substantial 
adaptations of capital-labor ratios, particularly in auxiliary 
processes. This is the case for Boon (1975), Pack (1972, 1976), 
Barenson (1967, pp 59-62); Strassmann (1968, chs 5 and 6), Mason (1970) 
ILO (1972b, pp. 446-450), Wells (1973), and Armas (1973). Ranis 
(1971, 1973, 1974, 1975), Helleiner (1973a; 1973b), and 
Baerresen (1971) find multi-national corporations adapting to 
labor-intensive processes for export products. 

Both locally controlled firms and multi-national corporations 
can and do adapt their factor proportions. Is either group more 
likely to adopt more labor-intensive methods? On this question, 
Strassmann, Pack, and the ILO mission to Kenya all find the multi- 
national corporations to be more labor-intensive; they explain 
this on the grounds that adopting labor-intensive technology 
requires good management and multi-national corporations have 
this in abundance. Mason ( 1970 ; 1973) finds that for a group of 
matched pairs of firms, U.S. controlled firms tend to be somewhat 


more capital-intensive than locally owned Philippino or Colombian 
firms; he explains this on the grounds that the U.S. firms pay higher 
wages and have access to cheaper capital. Radhu (1973a) also finds 
foreign firms to be more capital intensive than locally owned 
Pakistani firms. But Cohen (1973; 1975) finds no significant 
differences between foreign and Korean firms producing for export 
markets. The evidence is clearly mixed. 

White concludes that although the multi-national corporations 
may not be the heroes of appropriate technology, they appear to be 
far from the villains that many make them out to be. They have the 
management expertise, and they are frequently willing to use it 
to adapt to labor intensive processes. 

These surveys are general. But they clearly indicate that U.S. 
firms investing in LDCs are not a monolith. As our meetings with 
the private sector clearly confirmed, there are companies and people 
within companies who are clearly concerned with the problems in 
developing countries and are seized with the idea of appropriate 
technology. Ford and General Motors are both producing and marketing 
low-cost vehicles in developing countries. 

What this indicates is that opportunities for involving U.S. firms 
in appropriate technology doubtless exist on a case by case basis, and 
the strategy for the Section 107 program — initially at least — is 
to search out such opportunities and seek to capitalize on them. There 
was a clear consensus at all our meetings that more investigation of 


such opportunities should be undertaken and modest experimental programs 

Some initial ideas for activities which emerged at the meetings 

(1) Establish a system (possibly through banks) to seek out 
medium-sized U.S. companies for matching identified needs 
in developing countries. 

(2) Conduct surveys and in-depth analysis to determine what 
it takes to get U.S. small business to participate in the 
process of technology transfer. 

(3) Fund a two-way exchange program for managers of U.S. and 
LDC small business to facilitate transfer and know-how and 

(4) Assist emerging small scale industry projects to develop by 
encouraging the direct involvement of similar U.S. small 

(5) Organize a number of firms in a specific U.S. small scale 
industry to help them transfer technology and management 
practices to similar firms abroad. For instance, -the 
Denver Research Institute is considering organizing about 
30 small metal working firms in Colorado as a resource 
for technical and managerial advice for similar working 
firms in Mexico. 


(6) Training or orientation programs in the choice and evaluation 
of appropriate technologies for U.S. equipment suppliers, 
U.S. manufacturing companies, and U.S. consulting firms. 
Such courses could be given on an industry basis and include 
entrepreneurs from LDCs. 

In addition, monetary incentives might be used to encourage 
U.S. firms to consider alternative technology, although we believe 
the Section 107 program should be very cautious about using grant 
funds as incentives. Some suggested ideas are: 

a) Ask U.S. investors about to invest in a less-developed 
country to develop a new design of plants that would employ 
more labor and use less capital than their customary plant 
designs. If the investor, after having developed a new 
design decided not to use it, Section 10? grants would pay for 
the extra expenses incurred in making the design (a limit on 
the expenses provided would be set in each case) and would 
obtain the rights to the design so that it could be made 
available to other firms. If on the other hand, the new 
design were to be adopted by the firm that developed it, 

no reimbursement would be due. 

b) Give grants to U.S. equipment manufacturers to encourage 
the development of appropriate technologies for less- 
developed countries. The reward system might be similar 


to that discussed above under (a); i.e. the firm is paid 
for the design if it does not use it, but not paid if it 
does . 

CODA - Window on the West 

All the activities and goals described for the program above are 
directed toward developing countries. Yet part of the audience for 
the Section 107 program lies in the United States. This is true in 
several senses. 

First, as already stated, the program is to serve as a source 
of expertise, knowledge, and influence on A.I.D. and other donors. 

Second, there are actions - large and small - which can be 
taken in the United States to facilitate the development and 
dissemination of appropriate technology in developing countries. 
For instance, U.S. universities can be encouraged to introduce 
appropriate technology into engineering courses for foreign students. 
There are both national and international policies (for example, 
international patent policies) which can hamper LDC efforts to 
develop their own appropriate technologies. A program of the size 
of Section 107 cannot do much to deflect these forces. But it can 
maintain a watch on them and - at the least - not proceed on the 
narrow assumption that the problem of appropriate technology for 
LDCs lies solely overseas. 

Third, there is a signficant movement in this country toward 
lower cost, small scale, decentralized technology. The National 

i4-665 O - 76 - 4 


Center for Appropriate Technology is being established in Montana 
under federal funding. There are numerous private groups at work. 
The appropriate technology program needs to build links to these 
groups both to help overcome the notion that appropriate technology 
is suited only for underdeveloped countries and to encourage two-way 
flows of information between domestic and overseas groups. 


III. Organization 

A. INTRODUCTION : When the House International Relations Committee 
wrote Section 107, they felt that a snail, independent , non-profit 
entity should be established outside A.I.D. to make grants and 
coordinate Section 107 activities. According to the staff of 
the Committee the reasons were: 

— a feeling that a small unit would be more flexible, could 

act quickly, and better fulfill the innovative spirit of 

Section 107 than an A.I.D. office. 
— a feeling that an independent private entity with a 

governing board from the private community would more 

readily garner private sector support and stimulate 

private efforts. 
The HIRC realized that an outside organization might drift 
away from A.I.D. They felt this could be overcome by appropriate 
linking mechanisms. 

The committee originally planned to require an independent 
institute as part of the new legislation. At our request, they 
deleted this provision and requested that A.I.D. "study proposals 
for an institute of intermediate technology." This has been a 
major part of the A.I.D. work group's task. 

A.I.D. identified three organizational options for the program. 
These are: (1) a new, independent, private, non-profit organization 
to make grants and contracts to carry out Section 107 activities; (2) 
a new, independent government corporation outside A.I.D. (on the model 


of the Overseas Private Investment Corporation or the Inter- American 
Foundation); or (3) an Office of Appropriate Technology inside A.I.D. 
responsible for the full range of Section 107 activities. 

After careful consideration, A.I.D. has decided on an independent, 
private, non-profit organization to carry out Section 107 activities. 
We have chosen this option because we believe that it can best fulfill 
the innovative, private aspects of the program. 

An independent, non-profit organization will be an organization 
of and by the private sector. It will have a board consisting of 
representatives of business, private and voluntary agencies, 
universities, and others. The orientation of both the board and 
staff will be toward the private sector. As such, we believe the 
program will readily garner private sector support. 

In addition, experience with similar organizations has shown that 
they generally have a great deal of flexibility and can make grants 
rapidly in response to perceived opportunities. There is less procedural 
red tape and more rapid decision-making. Such organizations have a 
great deal of flexibility in hiring and managing staff — a condition 
which does not pertain in A.I.D. 

We believe these attributes have an important bearing on the 
innovativeness of the program. Certainly no organizational format 
can ensure innovativeness, but the flexibility, links with the private 
sector, and ability to act rapidly which are characteristic of a small, 
independent organization are to some extent preconditions for innovation 


and thus we have endorsed this alternative. 

At the same time, A.I.D. is concerned that the Section 107 
program serve as an energizer and resource for A.I.D.' s development 

As stated in Section I, A.I.D. already has a diversified portfolio 
of activities in appropriate technology. Congress expects - and 
A.I.D. intends - that we increase our concern with appropriate 
technology both in terms of specific appropriate technology projects 
and as an integral part of our development activities. 

Hence, it is vitally important that ideas generated in Section 107 
experimental programs reach the programmers of other A.I.D. funds. 
It is important that A.I.D. be a strong customer for real, useful, 
innovative, replicable, and adaptable appropriate technology emanating 
from the Section 107 program. 

A.I.D. is concerned that appropriate linkage mechanisms be 
established and a strong degree of complementarity be maintained 
between activities carried out under Section 107 and the overall 
A.I.D. program. Ws expect that there will be close consultation 
between A.I.D. and the management of the new Section 107 entity in 
developing policy, program goals, and strategy. This collaboration 
would be a continuation of the A.I.D. - private sector dialogue 
begun during our April and May meetings. 

Complementarity between A.I.D. and the new Section 107 program 
does not mean a one to one correspondence of policy and program. If 


the new organization is to fulfill its innovative mandate, it needs 
freedom to move into areas and activities in which A.I.D. is not 
currently active. In this sense, ensuring complementarity becomes 
something of a balancing act: maintaining broad congruity with A.I.D.'s 
priorities while preserving enough freedom to embark on new initiatives. 
Keeping these in balance will require close communication and collab- 
oration between A.I.D. and the management of the new entity. 

In terms of specific activities, there are a number of on-going 
and prospective A.I.D. projects which might be referred to the new 
107 entity for possible funding as grant projects. We believe over 
time a division of labor will evolve under which certain types of actions 
will be funded by Section 107 and others through normal A.I.D. channels. 
However, such a division of labor should evolve only as the new 
organization demonstrates its competence in given areas. The criteria 
for deciding which types of projects might be referred to the new 
organization and which types should be funded by A.I.D. directly should 
evolve as the Section 107 program develops and be based on development of 
demonstrated competence by the new entity. 

The basic point is that A.I.D. expects to continue to be a 
creative actor in appropriate technology; the existence of the Section 
107 program does not absolve the agency from this responsibility. 
A.I.D. bureaus and offices will continue to develop appropriate tech- 
nology projects and activities. As the new organization develops, it 
is expected to become a growing resource for A.I.D. efforts, but it 


is not intended to substitute for A.I.D. efforts nor will it be the 
only resource available. 

B. Organizational Framework : The decision to establish a new, 
independent, private entity for Section 107 is one aspect of the 
proposed organizational framework for appropriate technology. 
Beyond this, there need to be appropriate mechanisms for linking 
the Section 107 and A.I.D. program. Hence, the organizational 
format we propose has several parts. 

The first is the new, non-profit Appropriate Technology Fund. 
This organization will receive an annual grant from A.I.D. for Section 
107 programs and will, in turn, make sub-grants to contract with private 
or publically supported groups in developed and less developed countries. 

The second is establishment of a small office within A.I.D. to 
act as liason with the new Fund, and service appropriate technology 
activities carried out by A.I.D.'s bureaus and missions. This office will 
have the prime responsibility for ensuring complementarity between A.I.D. 
and the Section 107 program. It will oversee the annual grant to the 
to the new entity. It will provide information and help locate 
technical help for bureaus and Missions which are working on appropriate 
technology problems. 

Linking these two organizational elements will be a series of 
policies and procedures which will govern - in effect - the quality 
and effectiveness of the relationship between them. These include 
among other things: provisions for A.I.D. participation at the board 
level of the new organization; provisions for A.I.D. participation in 


technical panels or conferences called by the Fund; and provisions in 
the grant agreement designed to insure consultations on policy and 
program, and flexibility in day to day operations. 

We outline each of thtese three elements below. Much detailed 
planning remains to be done. This will be carried out following 
approval of this report by the Congress. 

C. The Appropriate Technology Fund ; The Fund will be an independent, 
non-profit corporation located in the Washington area. 

The Fund will not be an operational entity in the sense that 
it will run appropriate technology programs overseas. It will be 
a facilitator of actions in apppropriate technology taken by others. 
It will make grants to or contracts with private groups; serve as a 
resource for A.I.D. programs; serve as a communications channel; and 
help organize and coordinate the activities of various U.S. and LDC 
groups active in appropriate technology. 

More specifically, the functions of the Fund will be to: 

1. Develop overall policy and programs for Section 107. 

2. Encourage innovations in appropriate technology and projects 
to develop and disseminate appropriate technology in LDCs; 
receive, review, and approve projects and grants. 

3. Evaluate appropriate technology projects and programs; 
seek widespread utilization of appropriate technology 
innovations, or adoption of appropriate technology programs, 


by LDC governments, private enterprises, or A.I.D. donors. 

4. Promote awareness of appropriate technology; serve as a 
communication point; help transfer selected information 
about appropriate technology. 

5. Encourage networks of organizations interested in appropriate 
technology in the United States and LDCs; help coordinate 
activities of organizations interested in appropriate technology. 

6. Serve as a source of, and link to, appropriate technology 
resources for A.I.D. projects and programs. 

7. Receive and disburse funds from A.I.D. and other organizations; 
hire staff and consultants. 

The Appropriate Technology Fund will be empowered to receive 
funds from sources other than A.I.D. for programs in appropriate 
technology. This could include contributions from U.S. foundations 
or corporations. It could include support or contracts for specific 
projects. While A.I.D. welcomes such contributions, we are assuming 
that A.I.D. will provide most if not all of the funding for the Fund. 
A.I.D. 's decision to establish the Fund is not based on the expectation 
that it will become self-supporting or receive major outside contributions 
in the foreseeable future. 

The Section 107 authorization extends to 1978, but the proposal for 
a new, independent fund assumes implicitly that the Congress will 
continue the authorization beyond this date assuming adequate performance. 
We believe - if the Congressional Committees accept this proposal - 


that they should provide explicit assurance that they understand the 
funding basis for the new Fund and that they will not condition future 
funding on criteria other than performance. 

We believe the Board of Directors for the Fund should include 
representatives from business, private and voluntary agencies, academic 
institutions and alternative technology groups in the United States. 
We believe at least two A.I.D. officers should participate regularly in 
Board meetings as non-voting observers and as advisers on A.I.D. policies. 

In terms of organization and staffing, we have drawn up organ- 
ization charts, staffing patterns, and cost figures for two illust- 
rative versions of the Appropriate Technology Fund. These are 
attached to this report. They are intended to indicate the approximate 
maximum magnitude of the outside office and serve as a guide for planning. 

In drawing up these organizational proposals, we consulted with 
two organizations which are analogs for the proposed Appropriate 
Technology Fund: the Inter-American Foundation, and the Pathfinder 
Fund in Boston. 

The Pathfinder Fund is an independent, non-profit fund which 
receives $4-5 million per year from the A.I.D. Population Office. 
It, in turn, makes small sub-grants to LDC and (some) U.S. 
organizations for family planning projects. It has a staff of 
27 persons at its Boston headquarters and 35 employees (all foreign 
nationals) in 6 field offices overseas. Its administrative and 
staff costs amount to about $1.0 million out of a $4.5 million 
budget. ($600,000 for the Boston staff; and $400,000 for the 

regional offices.) It receives 90% of its budget from A.I.D. 
Pathfinder makes about 180 small grants a year ranging between 
$2,000 and $20,000. 

The Inter-American Foundation is larger. It is an independent 
government corporation which makes grants to LDC private groups for 
social and community development projects. Its budget is about $20 
million a year; its grants average about $120,000 each — the smallest 
being $400 and the largest $1.8 million. It has a staff of 64, all 
in Rosslyn, Virginia. Total costs for salaries and administration 
are about $1.8 million per year. 

We estimate that the proposed Appropriate Technology Fund 
established for Section 107 would be somewhat larger than Pathfinder's 
27 man Boston headquarters and smaller than IAF. We follow the IAF 
pattern of having no overseas offices. We have estimated average 
grants of $100,000, and a maximum annual budget of $10.0 million per 

Appropriate Technology Fund - Alternative A : The first version of 
the Fund would be at maximum a 30 man office consisting of 12 program 
professionals, 8 administrative staff, and 10 clerical/secretarial 
staff. The professionals include a director and deputy, eight specialists 
in fields such as small business enterprise, and agriculture machinery 
and food processing, and a two man communications/information/evaluation 
staff. Total annual staff and overhead costs are $1,004,820. 


Appropriate Technology Fund - Alternative B : This is based on 
consultations with the Pathfinder Fund. The estimated maximum total 
staff under this alternative is 34 and administrative and overhead 
costs would be $1,021,738, 

The principle difference between this and Alternative A is 
that it: (1) reduces the administrative staff; and (2) strengthens 
the professional staff. On the professional side, there are two 
specialists in each functional area and, except for an editorial 
associate, there is no separate communications staff. Communications 
and information would be part of the job of the functional specialists 
and thus better integrated into the ongoing program. The smaller 
administrative staff is based on Pathfinder's experience. It assumes 
that auditing and legal services would be purchased from commerical 

The organization charts for these alternatives are attached. 
We emphasize that these charts are illustrative and intended to 
indicate the approximate eventual size of a mature organization. 
The organization will start small and evolve as its program grows. 

D. Appropriate Technology Liason Office : This will be a small office 
located in the Technical Assistance Bureau in A.I.D. We currently 
estimate a -staff of two professionals for the office. However, we are 
planning to conduct a more detailed review of the functions and staff 
requirements for this office. This will include the expected workload 
for the office, current and prospective Agency involvement in appropriate 


technology programs, analysis of the number of staff in A.I.D. 
regional and central bureaus who either now carry or potentially 
could carry responsibilities in appropriate technology and the 
desireability of utilizing or augmenting this staff rather than 
further building up a central office. 

The functions of the liason office would be to: 

— Manage the annual grant to the Appropriate 
Technology Fund. 

— Maintain liason with Fund including 
attending board meetings. 

— Consult on A.I.D. projects involving 
appropriate technology. 

— Provide information about appropriate 
technology for A.I.D. bureaus and missions. 

— Locate technical and other expertise to 
assist Missions. (From both the Appropriate 
Technology Fund and other sources.) 

— Represent A.I.D. in international meetings 
on appropriate technology. 

The office is intended to serve as a source of information and 
technical resources to meet Mission needs. Missions, of course, do 
not normally face appropriate technology problems in isolation. They 
face development problems of which appropriate technology may be an 
ingredient. Hence, the office must relate in a multi disciplinary 
fashion to other staff offices in A.I.D. which are concerned with 
serving Missions. 

The basic role for the internal office is to respond to Mission 


and bureau needs for assistance in appropriate technology. It should 
function as a link in a bottoni-up chain which starts with appropriate 
technology related problems emanating from Missions . It is only by 
reflecting the real concerns of Missions and bureaus that it can best 
represent the concerns of the Agency in dealing with the outside office. 

For these reasons, we believe the internal office should be 
quite small. It should develop and maintain strong links with 
staff in the missions and the regional and central bureaus who are 
concerned with appropriate technology. We believe the current A.I.D. 
Appropriate Technology Work Group might be continued as a means for 
funneling the concerns of regional and other bureaus into the internal 
office and hence on to the new Appropriate Technology Fund. 

E. Policy and Procedures : The policy and procedures adopted by 
the Board of Appropriate Technology Fund and by A.I.D. in its grant 
agreement with the Fund will be critical in maintaining the proper 
balance between operational independence and flexibility for the 
new organization and close communication and complementarity with 
A.I.D. Tension between these two operational principles is inherent 
in the Section 107 legislation. 


We do not mean that the internal office will not be an active promoter 
of appropriate" technology concepts within the Agency. We do believe 
that the office can best be an active promoter of appropriate technology 
by relating to real problems of Missions not by selling activities 
conceived in Washington. 


On the substantive level, Section 107 creates a tension between 
the innovative, private aspects of the program — with its concommitant 
need for independence from A.I.D. — and the requirement that the program 
serve as a resource for A.I.D., with its concommitant need to stay close 
to A.I.D. 

On the administrative level, there is a tension between the 
need for procedural flexibility, rapid action, and minimal red 
tape, and A.I.D. 's ongoing need to ensure accountability and proper 
expenditure of funds. 

These tensions will persist. Maintaining the proper balance 
between them will require close communication and careful consideration 
of policy and procedures governing mutual relations between A.I.D. 
and the new entity. 

These procedures fall in three areas: 

(1) Procedures in over-all program and policy : Here we believe 
the operating principle should be to encourage the closest possible 
coordination and consultation between A.I.D. and the Appropriate 
Technology Fund. We believe the new organization should develop 
open, participatory processes for policy and program development which 
engage A.I.D. staff as well as U.S. and LDC private sector groups. 
The workshops held in April this year constitued a first step in this 
direction and we believe similar methods should be used in the future. 

We recommend that two A.I.D. persons participate ex officio 


on the board of the Fund, and that A.I.D. join in technical panels, 
advisory boards or planning conferences sponsored by the Fund. The 
basic principle to be followed between A.I.D. and the new Fund is 
close coordination in development of over-all policy and programs 
and maximum freedom in day to day operations. 

(2) Procedures Governing Specific Sub-Grant and Contract Activities : 
Here the operating principle should be to provide flexibility for the 
outside entity to approve specific sub-grants and contracts without prior 
approval from A.I.D. This will require development of criteria and 
guidelines for the Fund's financial/accounting system, procurement 
system and programming and grant approval process. Once these guide- 
lines have been mutually agreed upon, the Fund should have latitude 

to approve individual projects without prior A.I.D. approval. 

(3) Operational Procedures : Again we believe that the operating 
principle should be to provide maximum flexibility to the new agency 
and to its grantees. As stated in Section I, we recommend that 

the Fund have authority to approve grants for activities in non-A.I.D. 
countries subject to the existing statutory limitations on direct A.I.D. 
assistance. We recommend that grants and travel by the Fund staff 
require prior notification but not prior approval of Missions and 

We also recommend that a mutually agreed upon ceiling on 
operating expenses be established in the grant agreement so as to 
maintain an appropriate balance between operating and program expenses. 


In addition, the A.I.D. grant handbook contains 15 pages of 
optional provisions which stem from A.I.D. policy and may be waived 
by A.I.D. These include provisions such as Buy America, Fly America, 
and Ship America. Some of these policies are generally sound. 
Others, such as the Buy America provision, need reconsideration. 

The grant agreement will be the instrument for considering these 
policies and we will seek to follow a policy of minimum restrictions. 

Next Steps : Assuming approval of this report by the House International 
Relations Committee and the Senate Committee on Foreign Relations. 
A.I.D. will move immediately to implement the actions recommended 
in this paper. The next steps to be taken include: 

— Creation of the internal A.I.D. appropriate technology office 

including designation of its staff members. 
— Planning for the Appropriate Technology Fund including 

identification of incorporators and inviting the incorporators 

take the necessary steps to draw up articles of incorporation 

for the Fund. 
— Planning for consultations with LDC governments and private 

groups about programs and priorities in Section 107. 
— Joint A.I.D. - private sector planning regarding the 

organization, staffing, and initial budgets for FY 1977 and 

FY 1978 for the Fund; development of a draft grant agreement 

and policies. 


•Review of current A.I.D. efforts in appropriate technology 
and consideration of means to better integrate appropriate 
technology into A.I.D. 's program. This review will include 
reconsideration of staffing and location of the internal 
appropriate technology office as well as other bureau 


Estimated Annual Costs for a 
Troposed Organization Within A.J.D. for Appropriate Technology 
(Alternative A) 


es ard Benefits 

A. Central AT Entity* 


Director (GS-17) 


Deputy Director (GS-16) 


Administrative Assistant 


Program Economist (CS-15) 


Communications/ In format ion 
Officer (GS-14) 


Grants Officer, Agriculture 


7. Grants Officer, Agriculture 


8. Grants Officer, Health (GS-1S) 

9. Grants Officer, Education 


10. Grants Officer, Small 

Business (GS-15) 

11. 'Grants Officer, Institutional 

Development (GS-15) 

12. Grants Officer, Energy/Other 


15. Evaluation Officer (GS-14) 

14. Secretary/Stenographer (GS-7) 

15. Secretary/Stenographer (GS-7) 

16. Secretary/Stenographer (GS-7) 

17. Secretary/Stenographer (GS-7) 








Staff Augmentations in other MP entities, Suppo 
AT- Program 





rtive of the 

Grant Adninistrat ion 
Officer (GS-15) 

Grant Administration 
Officer (GS-13) 

Secretary/Stenographer (GS-7) 

Progran Analyst (GS-13) 

Other (2) 








II. Overhead FactoT (calculate'.', as 2T-" of salaries and 
hencfits ta cover travel, consultants, overt: 
space, telephone, administrative procurement, etc.) 


►There are now two positions established in the Bureau for Technical 
Assistance; thus, the net additional would he 21 positions. 



. Program Economist (1) ** 

. Grants Officer, Agriculture (2) 

. Grants Officer, Small Business (1) 

. Grants Officer, Institutional Development (1) 

. Grants Officer, Health/Sanitation (1) 

. Grants Officer, Education (1) 

. Grants Officer, Energy/Other (1) 

. Communications/Information Officer (1) 

. Evaluation Officer (1) 

. Secretaries (4) 


Deputy Director 

Administrative Assistant (Stenographer) 


Public Advisory 
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Salaries and Benefits 






Assistant Director/General Counsel 
Administrative Assistant 
Program Coordinator/Economist 
Grant Officer, Agriculture (2) 

Grant Officer, Small Business 

Grant Officer, Institutional 

Grant Officer, Health and 

Grant Officer; Education 

11. Grant Officer, Energy/Other 

12. Evaluation Officer 

13. Communications Officer 

14. Editorial Associate 

15. Secretaries (4) 

16. Executive Officer (Personnel, GSO) 

17. Auditor 

18. Budget and Fiscal Officer 

19. Accountant 

20. Financial Clerk 

21. Secretaries (3) 

22. Contract/Grant Administrators (3) 


Overtime (500 hours @ $9.40) 

Consultants (350 days @ $100) 


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(Suggested by Gaines B. Turner, Director of Operations, Pathfinder Fund) 

(Alternative C) 

Salaries and Benefits 

1. Executive Director 

2. Deputy Director 

3. Administrative Assistant 

4. Secretary 

5. Program Coordinator/Economist 

6. Program Coordinator/Economist 

7. Agriculture Specialist 

8. Agriculture Specialist 

9. Small Business Specialist 

10. Small Business Specialist 

11. Institutional Development Specialist 

12. Institutional Development Specialist 

13. Health Sanitation Specialist 

14. Health Sanitation Specialist 

15. Education Specialist 

16. Education Specialist 

17. Energy/Other Specialist 

18. Energy/Other Specialist 

19. Editorial Associate 

20. Evaluation Officer 

21. Contract/Grant Administrators (3) 

22. Secretaries (7) 

23. Controller 

24. Accounting Clerk 

25. Bookkeeper 

26. Personnel/Purchasing 


1 1. Over time 
III. Consultants 
IV. Travel 

V. Administrative Procurement (e.g., audit services, etc 
VI. Equipment and Supplies 




$ 55,000 

$ 5,170 




















































5, etc.) 



,021, 738 


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Secretary (1) 










Executive Director 
Deputy Director 
Administrative Assistant 








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Agriculture Specialist (2) 
Small Business Specialist (2) 
Institutional Development 
Specialist (2) 
Specialist (2) 
Education Specialist (2) 
Energy (and Other) 
Specialist (2) 
Editorial Associate (1) 
Evaluation Officer and 
AIO Liaison (1) 
Contract/Grant Adrinistrator P) 
tarles (6) (25) 



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Appropriate technology is technology which enables developing 
countries to provide goods and services for their people in a manner 
which is compatible with their economic and social conditions. 

Appropriate technologies relate both to economic and non- 
economic goals. They are applicable to employment, output, and 
equity objectives, as well as goals in population, health, nutrition 
and education. 

Given typical LDC conditions of scarcities of capital and skilled 
labor with an abundance of unskilled and semi-skilled labor, and taking 
as objectives of development assistance: 

— growth of employment and output through more effective use 
of resources, 

— while decreasing inequalities in income distribution, 

— emphasis on the basic needs of the poor, both economic and 
non-economic , and 

— increased participation of the poor in all aspects of the 
development process. 

It is expected that technologies appropriate in production will 

generally have the following characteristics: 

1) They will be intensive in the use of the abundant factor, 

unskilled labor, and economical in the use of scarce factors, 
capital and highly trained personnel. 

In the provision of services, appropriate technology relies to 
the extent possible on less highly-skilled labor - economizing 
on human capital. Appropriate technologies do not demand 
sophisticated skills of their users. 


2) Appropriate technologies are primarily based on locally and 
domestically-produced inputs, or on the use of national (not 
expatriate) personnel. 

3) Appropriate technologies in physical production are economically 
efficient in small and medium-scale enterprises, replicable by 
local entrepreneurs, and often produce primarily for a local or 
regional market. 

It is expected that goods appropriate to LDCs in consumption will 
emphasize the needs of the poor: they will generally be 

— low cost, 

— accessible to low-income people, 

— individually or locally maintainable without extensive support 
requirements , 

— compatible with local cultural patterns. 

Appropriate service technologies are those designed to produce 
manpower and medical care relevant to the requirements of the poor. 
They, similarly, will be low-cost, accessible, and compatible with 
local cultural patterns. 

None of these characteristics are binding. That is, satisfaction 
of these criteria does not certify a technology as appropriate. They 
are merely a set of attributes set out in order to give substance to 
the definition set out in the first paragraph: technology which 
enables developing countries to provide goods and services in a manner 
compatible with their conditions. 

What is appropriate in each country's development situation will 
be different in every case. For example, in a small country with a 


limited internal market, production for export may be important, for 
which a different product may be appropriate than for domestic con- 

While appropriate technology emphasizes small-scale production, 
in a number of circumstances, such as economies of scale, large-scale 
production may be appropriate. 

Appropriate technologies are expected to contribute to employment, 
output, and equity objectives, meeting the needs of the poor, and 
increasing participation by the poor in a number of ways. Emphasizing 
labor-intensity and employment of relatively unskilled labor will cause 
additional broadly-based employment of those at the bottom of society. 
Broad expansion of low but adequate income employment improves income 
distribution, contributing to a major social objective: equity. 
Encouraging the use of locally or domestically-produced inputs 
emphasizes the backward linkages of an appropriate technology: its 
downstream effect on domestic employment and output. 

Small-scale production allows regional dispersal of enterprises, 
especially over rural areas, each satisfying a limited market. Some 
governments consider this an objective, as well as the regional self- 
sufficiency promoted by local industries using local inputs. Low-cost 
goods and services and compatibility with local culture emphasize 
that appropriate technologies are aimed toward the poor. 



April 4-5, 12-13, 19-20. 26-27, and May L0, L976 

Ross M. Clemenger, Institute for International Development, 8150 Leesburg Pike, 
Suite 504. Vicuna, Virginia 221S0. 

Melvin B. Myers. Church World Service, 475 Riverside Drive, New York. New- 
York 10027. 

Ross Hammond, Economic Development Laboratory, Georgia Institute of Tech- 
nology, Atlanta. Georgia 30332. 

Martha Stuart. 66 Bank Street. New York. New York 10014. 

Thomas Fox, Executive Director. Volunteers In Technical Assistance. Inc.. 8706 
Rhode Island Avenue, Mt. Rainier. Maryland 20822. 

William G. Hunter, Engineering Experiment Station. University Of Wisconsin. 
1500 Johnson Drive. Madison. Wisconsin 5370G. 

John Hammock. Executive Director. AITEC, 10-C Mt. Auburn Street. Cam- 
bridge, Massachusetts 02188. 

Roy E. Harrington. Deere and Company. John Deere Road. Moline. Illinois 61025. 

William McCrea. Entrepreneurship Institute, Suite 1190, IBM Building, Town 
and 4th Streets. Columbus. Ohio 43215. 

Kristin Shannon. Center for Policy Process, 1756 Massachusetts Avenue. N.W., 
Washington, D.C. 20036. 

Frank Tan, Agribusiness Council. 20 East 46th Street. New York. New York 

George Goss. 7 Orchard Lane. Woodstock, New York 1249S. 
j Eugene Eccli. Consultant to National Center on Appropriate Technology, MERDI, 
Box 3S00. Butte. Montana 59701. 

Donald R. Redden. Multinational Agribusiness Systems, Inc., 1725 K Street, 
N.W.. Washington, D.C. 20006. 

Dr. Norman Brown. ERDA. Office of International R&D Programs, 20 Massa- 
chusetts Avenue. N.W.. Washington, D.C. 20545. 

B. E. Ritzinger, Administration Centre. Deere and Company. Moline. Illinois 

Grafton Trout. PASITAM, University of Indiana. 1005 East 10th Street. Bloom- 
ington, Indiana 47401. 

Jack Sullivan, House International Relations Committee Staff. 2170 Ray burn 
Office Building. Washington, D.C. 20515. 

Robert P. Morgan, Engineering Department. Box 1106. Washington University, 
St. Louis, Missouri 63130. 

Theodore W. Schlie, Denver Research Institute. University of Denver. Denver, 
Colorado S0210. 
| Peter J. Davies, International Planned Parenthood Federation. 711 Ladd Road. 

Bronx. New York 10471. 
i Brenda Gates. MSP/IO, Room 700. S06 Connecticut Avenue. N.W.. Washington, 
D.C. 20006. 

Mary Ann McKenzie, Office of policy Development and Review. Community Serv- 
ices Administration. 1200 19th Street. N.W.. Room B219E, Washington, D.C. 
'Clarence J. Mann. Assistant General Counsel. Sears. Roebuck and Company, 
Sears Tower. 45-10. Chicago. Illinois 60084. 

Wallace W. Elton. Yice President. International Executive Service Corporation. 
622 Third Avenue. New York. New York 10017. 

Robert M. Pierson. Chemical Research Division. Goodyear Tire and Rubber Com- 
pany. Akron, Ohio 44316. 

Peter N. Gillingham, Intermediate Technology. T'SA. 556 Santa Cruz Avenue. 
Menlo Park, California 94025. 


74-665 O - 76- 6 


Richard Raymond. Portolo Institute, 541 Santa Cruz Avenue. Menlo Park. 

California 94025. 
Scott Rutherford. EDA. Department of Commerce. Room 7842. Washington. D.C. 

Frank J. Ahimaz. School of Engineering, Cornel] University. Ithaca. New York 

II. E. Hoelscher, School of Engineering. Benedum Hall. University of Pittsburgh, 
4iio<> 5th Avenue. Pittsburgh, Pennsylvania 15201. 

Michaela Walsh. Rockefeller Brothers Fund. 30 Rockefeller Plaza. New York. 
New York 10020. 

David Evnon. The Koppers Company. Koppers Building. Pittslmrgh, Pennsyl- 
vania 15219, 

.Mark Sterner. Executive Director. Meals for Millions Foundation. 1800 Olympic 
Boulevard, Santa Monica. California !Ki4(i4. 

David H. Scull. Partnership for Productivity. P.O. Box 170, Annandale. Virginia 
220i 13 . 

Shafeek Nader. National Commission on Cooperative Arrangements, Suite 1010, 
1875 Connecticut Avenue. NAY.. Washington, D.C. 20009. 

Francis Method. Education Development Center. 55 Chapel Street. Newton. 
Massachusetts 02160. 

Dean Phillips. Goodwill Industries of America. Inc., 92 Wisconsin Avenue. Wash- 
ington, D.C. 20014. 

Surjit Mansinyh. Institute for International Policy. 122 Maryland Avenue. N.E.. 
Washington. D.C. 20002. 

Per Christiansen. Program Designs for Educators. 814 Faneuil Street. Boston, 
Massachusetts 02135. 

Edward Bullard. Technoserve. Inc.. 30 Did Kings Highway South. Darien. Con- 
necticut 06820. 

Ann Becker. Science. Technology and Puh'ic Policy. George Washington Uni- 
versity, Washington. D.C. 20052. 

Carol Ulinski. Science. Technology and Public Policy. George Washington Uni- 
versity, Washington, D.C. 20052. 

Dr. Donald Ritter. Whittaker Laboratory. Building No. 5. Lehigh University. 
Bethlehem. Pennsylvania 18015. 

Allie Felder. Cooperative League of the USA, 1828 I. Street. N.W.. 11th Floor. 
Washington. D.C. 20005. 

Kerniit Meier. Director. Goodwill Industries of America. Inc.. 02 Wisconsin Ave- 
nue. Washington, D.C, 20014. 

June Turner. Overseas Education Fund. 1730 M Street. NAY. Washington. D.C. 
2( 1096; 

Al Craig, Program Designs for Educators. 314 Faneuil Street. Boston. Massa- 
chusetts 0213.". 

Jodie Levin-Epstein. The Children's Foundation, Suite 1112. 1028 Connecticut 
Avenue. N.W.. Washington, D.C. 20030. 

Michael Miller. Vice President. Council of the Americas. 1700 Pennsylvania Ave- 
nue. NAY.. Washington. D.C. 20000. 

Gordon Donald, nil Swinks Mill Road. McLean. Virginia 22101, 

Jack Baranson: Developing World Industry Technology. Inc.. 010 18tb Street. 
WW.. Suite 800, Washington. D.C. 20006. 

Douglas Hettinger, Developing: World Industry Technology. Inc.. 010 isth Street. 
N.W.. Suite 800. Washington, D.C. -J0000. 

Steve Wilbur, Volunteer Development Corps, 1020 K Street. N.W.. Washington. 
D.C. 20036. 

George Ingram. House International Relations Committee Staff. Room 2170. Ray- 
hum Office Building, Washington. D.C. 20515. 

E. C. Grigg. Community Development Foundation. 345 East 40th Street. New 
York. New York 10017. 

Larry Ng. Wor'd Man Fund. Box 30341. Rethesda. Maryland 2">014. 

Herman Pollack, 714 Library. George Washington University. Washington. D.C. 

Howard Pack. Swarthmore College. Swarthmore. Pennsylvania 10081. 

Steve Hellinger. Developing World Industry Technology. Inc.. 010 18th Street. 
X.W.. Suite 300. Washington, D.C. 20000. 

Jack Yanderrvn. Office of International R&D Programs. ERDA. 20 Massachusetts 
Avenue. X.W. Washington. D.C. 20545. 


Tim Lynch, Office of Congressman G ge Brown, 2342 Rayburn Office Building 

Washington, O.C. 20.~>ir>. 
John Bosley, Research Council for Small Business and the Professions 2120 I. 

Street, N.W., Washington, D.C. 20036. 
Daniel Santa [Metro, Catholic Relief Services, ion First Avenue N'ew York 

New Ymk 10022. 
Bill Ellis, Coalition for Appropriate Technology, 7410 Vernon Square Drive, 

Alexandria, Virginia 22306. 
Evan Vallianatos, oilier of Technology Assessment, U.S. Congress Washington 

D.C. 20510. 
Charles Paolillo, House International Relations Committee Staff. Room 2170, 

Rayburn office Building, Washington, D.C. 20515 
Guy Gran, institution for International Policy, 122 .Maryland Avenue \ F . 

Washington, D.C. 20002. 
Mary Ann Riegelman, Development Alternatives, in... L823 Jefferson Place, N.W.. 

Washington, D.C. 20036. 
Starr Solomon. International Development Research Center. 1028 Connecticut 

Avenue, N.W., Washington, D.C. 20036. 
George W. Doud, National Rural Electric Cooperative Association. 2000 Florida 

Avenue. X.W.. Washington, D.C. 20009. 
Prans J. Kok, Booz, Allen and Hamilton. Inc.. 1025 Connecticut Avenue. \.\V . 

Washington, D.C. 20036. 
Charles Weiss. International Raid; for Reconstruction and Development, 1818 II 

street. N.W., Washington, D.C. 20009. 
Caro'yn Long, Trans-Century. Inc. 1789 Columbia Road. Washington, D.C. 20009. 
Irene Tinker. Director. Office of International Science, American Association for 

the Advancement of Science. 1770 .Massachusetts Avenue. N.W., Washington, 

D.C. 20030. 
Jay Davenport. Office of the Foreign Secretary. National Academy of Sciences, 

2101 Constitution Avenue. N.W., Washington. D.C. 20037. 
Patricia Cloherty, Allan Patricof Associates, Inc., 1 Fast ."3rd Street. New York. 

New York 10022. 
William Anderson, c/o Congressman Clarence 1 >. Long, House Appropriations 

Committee. Room 2240, Rayburn Office Building, Washington, D.C. 20515. 
Godwin Odumah, Opportunities Industrialization Center. Inc., 240 W. Tulpe- 

bocken street. Philadelphia, Pennsylvania 19144. 
Clark Edwards, I'SDA. ERS/EDD, 500 12th Street, S.W., Room 400. Washing- 
ton, D.C. 20250. 
Dennis Goulet, Overseas Development Council. 1717 Massachusetts Avenue. \AV . 

Washington, D.C. 20036. 
Lawrence White, Department of Economics, Princeton University, Princeton. 

New Jersey 08540. 
Hugh Miller. Office of the Foreign Secretary. National Academy of Engineering. 

2101 Constitution Avenue, NAY.. Washington, D.C. 20037. 
Mary Locke. League of Women Voters, 1730 M street. N.W., Washington. D.C. 

George R. Gerardi, Technoserve, Inc., 36 Old Kings Highway South. Darien, 

Connecticut 06820. 
Peter Thinner. Division of Nutritional Sciences. Salvage Hall. Cornell University. 

Ithaca. N.Y. 14853. 
John Callahan. International Paper Company. 160 Fast 38th street. New York. 

N.Y. 10017. 
Milton Stewart. President. National Small Business Association. 122.) 19th Street. 

N.W.. Washington. D.C. 20036. 
Michael Mehrer. Food Preservation Program. Rail Corporation, 345 S 

Street. Muncie. Indiana 4730.". 
Saadia Schorr. 1.130 Palisade Avenue. Apt. F. Fort Lee. X.J. 07024. 
Brenda Eddy, Department of Business Administration. Georgetown I niverslty. 

Washington, D.C. 
Lewis Goodman. Acting Director. Technology and Development Institute. East- 
West Center. Honolulu. Hawaii 96822, 
Loren Finnell. PACT. 777 United Nations Plaza. New York. \A 10017. 


Private Voluntary Organizations and Appropriate 

(A Report for the Agency for International Development) 

This report has been prepared by PASITAM -- the Program of Advanced 
Studies in Insti tution-Bui Iding and Technical Assistance Methodology. 
PASITAM is a component of MUCIA -- the Midwest Universities Consortium 
for International Activities. 

PASITAM was created with significant financial assistance from the 
U.S. Agency for International Development, to help link academic experts 
and practical planners and managers in identifying, and analyzing certain 
key problems of developmental assistance -- essentially the problems of 
designing effective systems of practical action in such fields as agricul- 
ture, rural development, health, and others. 

A generic concern of PASITAM is the effective use of organization 
and management in developmental efforts. Private voluntary organizations 
represent one broad and certainly diverse category of organizations. A 
number of them play interesting roles in development. "Appropriate tech- 
nology" is the current catchphrase for a set of important and interesting 
concerns, which require sound analysis and effective organization, if 
these concerns are to be transformed into practical realities. This li- 
mited study identifies basic opportunities for enhancing the exploitation 
of appropriate technology by PVOs. It also identifies certain questions 
which lie outside the scope of this report, but which are germane to the 
broad issue at hand. 

Urn. J. Siffin 




This study examines the role which Private Voluntary Agencies (PVOs) 
play in the development of appropriate technology (AT). More than 30 
PVOs involved 1n AT-related activities have contributed to this study. 

The study is not comprehensive nor can it be considered definitive. 
It does, however, provide a set of informed answers tc a set of questions 
posed as the basis for this report. 

(1) What are the PVO experiences and contributions to generating and 
disseminating AT? 

'Appropriate technology' in essence means 'good' technology — 
technology which both works and serves desirable social and economic aims. 
PVOs are usually action oriented groups concentrating in extensive field 
programs. This field experience presents them with unique opportunities 
to identify and respond to local needs, including needs for AT. 

Each PVO works differently in identifying project needs and opportu- 
nities. Some develop extensive, long term programs which require con- 
siderable external technical assistance. Most PVOs, however, rely heavily 
on project-by-project approaches using local voluntary technical exper- 
tise and their own staff. 

After identifying a need PVOs may respond in one of three ways: They 
may improvise in the field, conduct in-house research and development ef- 
forts to find or devise a promising solution, or conduct local and inter- 
national searches for solutions involving the application of technology. 


Considerable technological adaptation and innovation occurs through 
improvisation, especially, in small-scale resource-short projects. Re- 
latively few PVOs have the technical resources to conduct in-house R&D 
PVOs generally obtain technological information through local and inter- 
national searches. International agricultural institutes are commonly 
used; other institutes are used infrequently. 

Few PVOs can undertake projects primarily for testing. Most lack 
resources to establish specialized evaluation units. Most PVOs disseminate 
limited project information in newsletters or similar brief reports. 
There is little dissemination into more formal channels. 

(2) What weaknesses or limitations can be isolated from PVO experiences 
in AT? 

PVOs often lack the necessary financial and human resources to properly 
assess technical components in either project design or implementation. 
Only a few technology centers currently offer adequate technical consul- 
tancy services. PVOs need better backs topping and stronger linkages to 
sources of R & D. 

PVOs are also weak in testing, assessment, and dissemination of their 
AT experience. Few PVO-AT projects are extensively documented, and even 
fewer have been systematically analyzed. The operational modes of these 
agencies are generally action oriented, with minimum emphasis upon studies 
and analysis. 

(3) What kjnds of support and assistance would best promote effective 
PVO involvement in generating and disseminating AT? 

If PVOs are to play a larger role in AT activities, stronger linkages 


are required between technology sources and opportunities for PVO tech- 
nology applications. 

•Technology institutes and clearinghouses could provide on- 
site technical consultancy services 1n needs identification, 
engineering, and impact assessment. 
•Catalogs of simple technical ideas like VITA's Village 
Technology Handbook could be more widely distributed to 
field-based PVOs. 
Most PVOs do not have the resources to extract and disseminate lessons 
from their practical experience. To facilitate such dissemination: 
* "AT testing and monitoring could be underwritten, in arrange- 
ments involving those employing and using the technology. 
•Backstopping capability might be further developed in such 
organizations as World Education, World Neighbors, the Edu- 
cation Development Center, and similar PVOs to assist field 
based PVOs in monitoring, testing, evaluating, and dissemina- 
ting AT. 

•AT institutes and clearinghouses could produce and disseminate 
manuals on PVO-developed "hard" and "soft" technology projects. 
AT field delivery could also be improved. Local indigenous extension 
services which provide "soft" technologies and identify potential techno- 
logy manufacturers might be a promising delivery system in certain cir- 

Indigenous capacity building, through technical and management training 
and creating linkages with outside resources, is essential for AT to have 


a lasting development impact. 

(4) What specific types of assistance should AID undertake to best 
improve PVO use of AT? 

As a group, PVOs are weakest in back-up assistance in identifying and 
shaping appropriate technological responses to field-situation needs, and 
in documenting and disseminating the results of their own experience. 
USAID could provide assistance in these areas. 

The Agency for International Development might enhance the effective- 
ness of PVOs in identifying, assessing, adapting, applying and assessing 
AT in several ways: by funding the establishment or expansion of techni- 
cal consultancy services available for field assistance to PVOs (and 
possibly not limited to them); by underwriting one or more arrangements 
for enhancing the documentation and analysis function as it applies to 
PVO field experience with appropriate technology; and by undertaking or 
underwriting the dissemination of selected and tested materials on appro- 
priate technology among PVOs likely to find it of use. Means might range 
from field-oriented conferences and seminars to a publications program. 


This study examines the role which Appropriate Technology (AT) plays 
1n the development activities of Private Voluntary Organizations (PVOs). 
The first section of the study defines the term 'appropriate technology' 
and discusses the general implications of AT activities for PVOs. The 
second section describes the field operating characteristics of PVOs and 
cites cases illustrating how they design, adapt, assess and disseminate 
AT. The third section analyzes the problems currently facing PVOs and 
identifies potentially rich areas for the expansion and strengthening of 
AT activities. The fourth section offers recommendations on what kinds 
of support and assistance would best promote effective PVO Involvement 
in generating and disseminating AT. 

There are two basic assumptions underlying the design of this study: 
(a) that there are actually and potentially practical ways to identify, 
develop, test, apply, and disseminate forms of technology which are dis- 
tinctively appropriate to development aims and (b) that PVOs are in sev- 
eral ways important parties to these activities. By learning from PVO 
experience, we may be able to expand the development and use of appro- 
priate technologies and to enhance the contributions of PVOs. 

With these assumptions in mind, eighty-three organizations involved 
in substantial AT-related activities were selected for study. A ques- 
tionnaire was sent to these organizations. Twenty-seven responded with 
letters and materials, and several telephoned their responses. In 

addition, interviews ranging from one to six hours were held with the 
staffs of twenty organizations (see Appendix). 

It should be apparent that this study cannot be considered compre- 
hensive or in any way definitive. The PVQs examined in this study do 
reflect a wide range of AT activities. Any comprehensive study would . 
require a much larger survey of organizations and a greater number of 
in-depth interviews.* 

*The Technical Assistance Information Clearing House provides brief 
descriptions of 418 voluntary agencies, missions, and foundations in U.S. 
Non-Profit Organizations in Development Assistance Abroad (1971). 



'Appropriate technology' is the shorthand label for efforts to develop, 
apply, evaluate, and disseminate knowledge about technologies which are 
distinctively useful to the conditions of poor countries and to the needs 
of poor people within those countries. Implicit in the use of the term 
is the assumption that there are some technologies which are inappropriate 
to a particular development situation. The appropriateness of a certain 
technology is determined by two criteria. 

First , the potential technology must be applicable to the particular 
environment. Among the factors important in determining applicability are 
relative sophistication and availability of human resources necessary to 
apply the technology, suitability of the technology to the situation, and 
compatibility with the customs and social institutions of the local 

The introduction of inappropriate technology can, all too often, 
occur, and the inappropriateness need not be great to have a disastrous 
effect on a project. Recently a well designed, two-handed oxendrawn plow 
was introduced into an area where a one-handed plow had been the custom. 
The one-handed plow allowed the driver to use the other hand to guide the 
oxen. The introduction of a two-handed plow would require the use of an 
extra person to guide the oxen or a retraining of the oxen. After a 
short trial period many of the farmers abandoned their new plows and re- 
turned to the old one-handed plow. 

The second criterion for determining the appropriateness of a techno- 
logy is the relevance of the social goals which will be served by the 


technology to the aims of the promotors. Readily transferable technology 
may be inappropriate to development needs in the target society. For 
instance, a particular project may have as pts goal the lowering of labor 
costs in a certain native industry through jthe introduction of labor- 
saving technology. Such a project would be' appropriate in an area 
deficient in labor resources, but in an overpopul ated area, a labor In- 
tensive technology might be more appropriate. 

It should also be noted that the term 'technology* refers not merely 
to 'hard' machinery and technical skills. It also encompasses training 
programs, organizations, management and other 'soft* technology. Techno- 
logy is not and cannot be abstracted from the situation in which it is 
to be used; it is the direct link connecting needs to organized and 
rationalized means of satisfying those needs. Appropriate Technology 
considers the local, natural, and human resources and encourages indigenous 
initiation and innovation. 

There remains considerable disagreement about the import of the idea 
of AT, but it is generally agreed that the basic determination of appro- 
priateness must come from the field. Moreover, the potential technology 
must be tested in the field, in its intended use area. Finally, it is 
acknowledged that PVOs play important roles in developing, testing, ap- 
plying and disseminating technologies. 

PVOs are of distinctive importance because of their heavy involvement 
in field programs. PVOs are usually action oriented groups concentrating 
upon field operations. Their orientation and their experience give them 


unique opportunities to develop, test, apply, and disseminate applications 
of technology. By examining the PVO experience with AT activities much 
can be learned about the nature of AT and about how best to expand the PVO's 
role In AT activities. 



PVOs may be roughly categorized into three groups. 

1) A small number of PVOs operate field projects and have internal 
technical backup personnel (e.g., project analysis, engineering, 
organizational training). Representative agencies include Catholic 
Relief Services, CARE, the American Friends Service Committee, and 

2) The largest number of PVOs are field action-oriented and have 
thin internal backup capability. Representative agencies include 
Foster Parents Plan, the Paul Carlson Foundation, Community Develop- 
ment Foundation, Partnership for Productivity, and the Mennonite 
Central Committee. 

3) A small number of PVOs usually do not operate direct field 
projects but do provide specialized assistance (e.g., information 
services, personnel) to other organizations. Representative agencies 
include Volunteers in Technical Assistance (VITA), World Education, 
World Neighbors, Heifer Project International, and Credit Unions of 
North America (CUNA). 

Identifying Needs 

Crucial to the proper function of all three types of PVOs is the iden- 
tification and specification of the technological needs and opportunities 
of the local environment. Beside the accurate assessment of technical 
needs, good project identification requires a careful assessment of the 


social criteria which an appropriate technology must meet. 

Each PVO works differently in identifying project opportunities. 
CARE, one of the largest PVOs, establishes five-year country plans in 
cooperation with counterparts, government agencies, communities, and 
indigenous PVOs. These plans include project goals which may require 
external technical assistance and material. Technology needs are in- 
tegral to project design, and CARE uses outside technical consultants 
and its own staff to specify the required technologies. Other organi- 
zations rely heavily on project-by-project programming, using local 
voluntary technical expertise and their own staff. 

PVO Responses to AT Needs 

PVOs can pursue three modes of action when they identify technical 
needs and specifications: 

1) They may improvise in the field; 

2) They may conduct in-house research and development; or 

3) They may conduct local or international searches. 

Field Improvisation 

Considerable technology adaptation and innovation occurs through 
improvisation in the field. One respondent stated, "We live on the edge 
of virtual non-survival most of the time. Maybe that is one reason why 
i we improvise and come up with answers; we just have to survive." While 
managing a small hospital and an associated agricultural program, his 
organization identified fourteen examples of local innovation and 


adaptation ranging from rebuilding a dental X-Ray for chest and pelvic 
examinations to designing and constructing a bicycle ambulance. 

One PVO made a placental extract for ar\ anabolic in a local hospital, 
adapted an autoclave for charcoal, and built a waterwheel from local 

To build local tools or introduce new processes, field workers often 
proceed from a drawing or newsletter description. There are numerous 
catalogs of simple ideas similar to VITA's Village Technology Handbook 
available to draw information from. Many of these catalogs present sim- 
ple, provocative technical ideas. 

It is not surprising that small-scale resource-short projects produce 
technological innovations that are consistent with local materials, skill 
levels and customs. The innovators are familiar with the social setting 

and this combined with ingenuity and local materials produces many useful 



In-house R&D 

Several PVOs have developed and adapted relatively sophisticated 
technologies. ACCION Internacional Tecnica, and Meals for Millions are 
developing high protein soybean food for production and consumption in 
Central America. CARE, assisted by outside experts and an AID grant, 
has developed and is testing plastic-treated jute to provide typhoon- 
resistant material in Bangladesh. 

The Community Development Foundation uses local volunteer consultants 
in agriculture, credit, health, and nutrition to provide technical 


assistance and AT development. Church World Services is cooperating with 
John Deere in Africa to develop a locally adapted plow. 

World Neighbors, International Planned Parenthood, and the Community 
Development Foundation have developed innovative techniques in family 
planning, rabbit breeding, community organization, construction, sanitation, 
and cooperative organization. These technologies have been developed 
through cooperation among field representatives, local organizations, 
and national and international experts. World Neighbors, for example, 
assisted in the production of a multi-lingual filmstrip on rabbit farming 
with SEDA (Service de Developpement Agricole) in Zaire. 

Information Searches 

Information on most technologies is obtained through local and inter- 
national searches. Many PVO searches begin in an informal network at the 
field level. Failing there, a PVO search often extends to more distant 
technology centers via the PVO headquarters, VITA or other clearinghouses. 

Searches begin with a specific need and a rough idea similar to the 
"product development" stage of a manufacturing process. Searches may 
occur during project design or during project implementation. 

Field Level Searches . A typical informal search begins locally and, 
depending upon individual contacts and the nature and scale of the pro- 
blem, may end quickly and successfully. ACCION uses indigenous talent 

and financial resources in its small commercial and industrial promotion 
projects in Central and South America. It draws heavily on the private 

74-665 O - 76- 7 

sector and regional organizations like IICA for technical advice. Other 
smaller PVOs also use this approach. 

Localized searches permit personal interchange in which needs and 
proposed technologies can be specified over a short time period. Yet pro- 
ject managers often miss locally available resources because of a lack of 
information. For example, one respondent was looking for high-lysine corn 
suitable for his project. At a large U.S. agricultural school, he learned 
that a locally adapted high-lysine corn was being tested 80 miles from his 
project site. 

The Christian Relief and Development Association (CRDA) in Addis 
Ababa, Ethiopia provides search services to any Ethiopian organization 
needing technical assistance. There are similar units in other LDCs. 
This more formal approach appears to plug gaps in the informal networks. 

PVOs have their closest field working relationships with AT centers 
when planning and implementing projects. These relationships are not 
often maintained on an on-going basis because PVOs collaborate on the 
basis of needs related to projects, not simply to maintain contacts for 
their own sake. 

Many PVOs stress their reliance on local technology and expertise 
sources. Most report that field personnel or counterpart organizations 
make every. effort to resolve technical problems in the field before callini 
for external assistance. PVOs recommend that local technical assistance 
sources like corporations, universities, applied research centers, local 
clearinghouses, and government research and extension services be 
strengthened as prospective AT sources. 


When AT-associated projects are beyond local technical and information 
'sources, a wider search is conducted for technical assistance. These 
»arches are usually initiated in the field but are conducted by an inter- 
idiary who channels the requests to AT sources. 

Field-based international searches reach technology sources directly, 
leir success depends on a knowledge of sources and the requestor's abili- 
f to specify appropriate criteria. A technology search is difficult even 
jr those familiar with worlwide sources. Dr. W.H. Boshoff of Makere Uni- 
»rsity had many such problems while designing the Mak V tractor. 

In the U.K. [Boshoff] had a direct connection with an 
agricultural college which is cooperating on the 
project but even then he experienced difficulties in 
finding out who the potential suppliers were. In the 
... United States, he initially only had catalogues 
which listed perhaps 20-30 suppliers for a particular 
part, with no detailed specifications or other infor- 
mation This necessitated a laborious and time- 
consuming correspondence with all suppliers in order 
to determine which two or three of them might actually 
be able to supply what he needed. Finally, the 
Rockefeller Foundation sent him to the U.S. so he 
could be there to choose parts suppliers, ... Dr. 
Boshoff would be in favor of some kind of clearinghouse 
for technological information transfer to developing 

Headquarters-based international searches are done by organizations with 
jghly technical needs. To be successful searches must match field techni- 
pl specification of need skills with headquarter knowledge of technology 

Technologies must sometimes be sought in unlikely places. Technoserve 

♦Theodore W. Schlie, "Appropriate Technology: Some Concepts, Some Ideas, 
id Some Recent Experiences in Africa, (Mimeographed Program of Research on 
le Management of Research and Development, Department of Industrial Engine- 
ing and Management Sciences, Northwestern University), p. 21. 


and local groups working on the re-development of the Corozo nut industry 
in La Caba lacked a high-pressure cracker for the exceptionally hard nut. 
A headquarters-based search led from VITA to the California walnut indus- 
try to ITDG in London. Commercial nut-growers gave them more detailed 
specifications of what machinery would be needed. Simultaneously, IT06 
learned that Unilever had absorbed two companies that had been part of 
the earlier Corozo-nut industry at the turn of the century. Technoserve 
found that the corporations and their technologies had literally vanished 
in corporate mergers. However, the required machinery specifications were 
clear enough to suggest a search of coal crushing technology. The search 
began anew in Thompson's Registry of Industrial Suppliers and ended with 
a small firm in Ohio which manufactured coal crushing machinery. 

While this seems to be an idiosyncratic case, many other technology 
searches are as complex. The difficulties of this search process include: 

1) International searches require considerable skilled manpower. 

2) They often require long lead times which can disrupt project 

3) Linkages between AT sources and PVOs are often poor. PVOs are 
hesitant to approach them for a variety of reasons including 
simply not knowing whom to approach. Linkages are primarily 
initiated through intermediaries. v 

4) PVO field and headquarters linkages are occassionally insuf- 
ficient to adequately identify technical specifications. 

Headquarters-based searches often ignore LDC technology sources. Some 
PVO-AT projects require access to American or western technologies, but 


LDC technologies do exist in various fields. 

LDC technology development research is increasing as a result of 

development efforts, and their technical capacities are increasing.* In- 

formation on LDC technology sources are being disseminated through units 

like WAITRO. Yet, LDC advances in information dissemination and R & D 

capacity will lack some of their potential Impact if PVOs do not exploit 


Information Clearinghouses assist PVOs and other organizations by 
locating technologies or providing technical consultants. VITA, ITDG, 
TOOL and a growing number of other organizations also conduct R&D and 
publish manuals on widely applicable technologies like solar cookers and 
windmills. These organizations are multi-sectoral. Other organizations 
concentrate on specific technology areas. 

The number of clearinghouses and AT centers has expanded to include: 

•Intermediate Technology Development Group Ltd. (London); 
•Brace Research Institute (Ste Anne de Bellevue, Canada); 
•Appropriate Technology Cell (New Delhi); 
•Planning Research and Action Division (Lucknow, India); 
•Appropriate Technology Development Unit (Varanasi , India); 
•Industrial Development Division, Engineering Experiment Station 

(Atlanta, United States); 

•Volunteers in Technical Assistance (Mt. Rainier, United States); 
•Division of Microprojects (Eindhoven, Netherlands); 
•Appropriate Technology Centre (Islamabad, Pakistan); 
•Technology Consultancy Centre, University of Science and 

Technology (Kumasi , Ghana); 
•Agricultural Engineering Department, the International Rice 

Research Institute (Manila, Philippines); 

•Earth Resources Development Research Institute (Washington, D.C.); 
•Technonet Asia (Singapore); 

*AID's Office of Science and Technology has fostered the growth of industrial 
research institutes. The Industrial Research Institute of Central America 
(ICAITI) in Guatemala and others have begun active programs. UNIDO, through the 
World Association of Industrial and Technological Research 0rgani7ations (WAITRO), 
supplied members assistance in applied research capacities. In 1970 the OAS be- 
gan technical assistance programs in technology development areas. 

**James Utterback, "The Role of Applied Research Institutes in the Transfer of 
Technology to Latin America." Discussion paper (Bloomington: Indiana University 
School of Business and PASITAM, 1974). 


•Small Industries Development Network (Georgia, U.S.A.); 
•East West Technology and Development Institute (Hawaii, U.S.A.); 
. -TOOL (Holland); 

•Intermediate Technology (Menlo Park, Calif., U.S.A.). 

Many PVOs are aware of VITA and use its services. A significant num- 
ber use ITDG. Only a few use the other clearinghouses or centers. 

Technonet Asia, a consortium of Asian engineering groups, responds to 
small industry and private agency problems. Anti -Poverty, Ltd. (UK) uses 
LDC and PVO's problems for student work in vocational education classes. 

Some technology institutes disseminate soft technology training ma- 
terials. ITDG, Cooperative League of the USA, and the University of Wis- 
consin's Cooperative Center have developed training packages, which might 
be more widely disseminated. 

Not all PVOs need to use and be in closd touch with technology centers. 
Information network organizations like ITDG, Technonet Asia (supported by 
IDRC-Canada) and the Small Industry Development Network at the Georgia 
Institute of Technology provide descriptive information on existing agri- 
cultural and applied- industrial institutes. 

Yet, several PVOs, including some with multi-purpose objectives like 
the Community Development Foundation, Catholic Relief Services, and the 
Near East Foundation, are closely linked with applied research organiza- 
tions. These centers provide significant resources for field adaptation 
of seed varieties and farm implements in conjunction with the FAO and such 
international crop-specific networks as International Rice Research Ins- 
titute (IRRI), International Maize and Wheat Improvement Center (CIMMYT), 


and CIAT (International Center of Tropical Agriculture).* 

The Near East Foundation, collaborating with CIMMYT, supports an adap- 
tation field station in Morocco. In Bangladesh, the MCC uses seed pro- 
vided by the IRRI (Philippines) and furnishes them with the results of field 
testing. Only a few PVOs use the services and material of agricultural 

There are several applied-industrial institutes, such as the Philip- 
pines Institute for Small-Scale Industries and the Technology Consultancy 
Center in Kumasi, Ghana. Our data indicate little cooperation between 
these groups and PVOs in the adaptation of small industry technologies. 

Testing, Assessing, Disseminating 

Once a technology is located, it must be field tested, monitored, as- 
sessed, and the results disseminated. Beyond a basic agreement that these 
steps are necessary, PVOs have varied views on how to do them. 

PVOs face several barriers to testing technologies. Many cannot pro- 
vide adequate funding for feasibility exploration and pilot testing of 
[alternative technologies. They are reluctant to divert funding from 
operational projects to experimental or even pilot projects having signi- 
ficant research costs.** They rarely have adequate staffing to monitor 
experimental programs. 

*These and nine other organizations provide training and are respon- 
sible for genetic research and field adaptation through an extensive network 
Df experiment stations. 

♦♦Several PVOs do conduct detailed evaluations, e.g., AFSCs Barpali 

(India) after ten years and FPP's Socio-Economic Study of Foster Parents 
?1 an of Bolivia . ' Others can be expected to do so with Development Progr 

arant monies. 

Few PVOs could or would use their projects primarily for testing if 
the testing was not clearly consistent with local needs and desires. 
However, a significant number of cases reveal a convergence of technology 
and receptive local conditions for testing. For example, MCC's develop- 
ment of sun-protective nets for covering vegetables in Botswana and CARE'S 
impregnated jute roofing in Bangladesh involve on-site testing. CARE 
is also currently testing nutrition techniques in three countries. The 
experimental design is carefully controlled and should enhance the know- 
ledge of alternative methodologies. The Mennonite Central Committee (MCC) 
maintains experimental plots and field tests new seed varieties with in- 
ternational research organizations like CIAT. 

Francis Method of the Education Development Center describes the 
testing process followed in that organization "Though most project ini- 
tiative now rests in the countries themselvejs, EDC often identifies 
potential projects through interactions with academic specialists and R & 
D groups outside EDC. EDC provides a means of testing the applicability 
of innovative suggestions with specialists in other countries and inter- 
national agencies who may be interested. Where there is interest, EDC 
can complement the specialized expertise with its capacities for situa- 
tional knowledge, program design, implementation and administration." 

The quality of PVO project assessment varies greatly. PVOs generally 
agree however, that they do not want to establish specialized evaluation 
units; PVOs would prefer to obtain evaluation assistance from other 
specialized PVOs like World Education, World Neighbors, and the Educational 
Development Center: 


World Education, among its many services, provides evaluation assis- 
tance. Its approach views technology as a component of larger efforts 
and overall program effects. World Education and VITA have recently 
proposed a joint project to evaluate the suitability and usefulness of 
AT manuals to the small farmers and rural villagers. 

Most PVOs disseminate limited project information through newsletters 
or similar formats. There is very little dissemination into more formal 
documentation channels. 

One organization reports the progress of its projects in quarterly 
reports. However, no program effectiveness evaluations are carried out. 
A staff member says, "We have a vehicle for spreading the word within 
the family. That is, each field director writes a Quarterly Report which 
is duplicated and a complete set goes to each program country. That Quar- 
terly Report contains a program statistical section which enables us to 
trace program progress, but it will not tell us a thing about program 
effectiveness and this is precisely where we want help and know that we 
must devise an evaluation mechanism. We also have means of spreading the 
word to our constituents, but we have no time for professional writing for 

This statement summarizes difficulties faced by most PVOs. 



PVOs in general are action-oriented organizations. Most PVOs have 
only limited technical backstopping capability. This is reflected in 
PVO project planning procedures. 

For AT needs and opportunities to be adequately assessed, a detailed 
feasibility study and design process is often necessary. Otherwise, 
examination of the project environment is apt to be shallow, and only 
standard technologies are likely to be considered. One PVO respondent 
believes each project should have a pre- investment impact statement. 
The statement should assess: 

1. The technology itself; 

2. The influence of the project's structure, scale, and operating 
style on possible technical choices; and, 

3. The project's interaction with other sectors and projects. 
Catholic Relief Services (CRS) provides a technical assessment fund 

of $10,000-15,000 per project to conduct counterpart project feasibility 
studies. CRS uses in-country and regional consultants to provide techni- 
cal assistance at the project initiation stage. 

AT needs may emerge during project implementation when there is little 
time for a technology search to determine specifications. These needs, 
not easily pre-specified during the project design stage, must be resolved 
quickly or a project may fail. 

Thus, staff members or consultants with a technical background are neces- 
sary to properly assess a project's technical soundness. Those PVOs with 


technical staffs in agriculture, health or small industry can best identify 
a locality's characteristics affecting the specifications of technical is- 
sues. For example, the Mennonite Central Committee and the Farmer's Brigade 
needed a detailed assessment of soil conditions, rainfall and manufacture 
costs to design a multi-purpose agricultural tool in Botswana. 

However, as noted above, most PVOs do not have the necessary financial 
or manpower resources to properly assess the technical components in either 
project design or implementation stages. They are interested in "doing" 
projects, not developing prototypes. This is partially a result of limited 
financial resources, but primarily because of organizational philosophy. 

VITA has responded to this problem by developing a "mail order" approach 
to technical information requests. This approach works poorly. VITA re- 
ceives over one hundred technical requests per month. Many are general 
inquiries containing inadequate technical and contextual data. VITA en- 
courages the requestors to better specify the problem context. However, 
PVO technical capability limits the degree to which the problem context 
can be specified. 

When the problem context is not adequately specified, problems occur. 
Windmill pumps failed in Guinea Bissau because seasonal and daily wind 
velocity was not measured and maintenance requirements were not thoroughly 
explored. Supplemental pump systems caused additional problems and expense. 

In addition, some technology problems are so complex that they can only 
be personally communicated to or directly perceived by a technical expert. 


This severely limits the utility of sending problems to R & D centers and 
clearinghouses for a mail response. 

Thus, the linkages between field-based PVOs and sources of information 
and R & D are weak in many cases. The field-based PVOs operate in com- 
plicated environments. They are confronted by a wide array of applied 
technology centers which specialize in various fields of technology. For 
them to effectively assist PVOs adequate technical specifications are 

Only a few technology centers offer technical consultancy services. 
Yet PVOs often need flexible consulting assistance in technical matters, 
including marketing problems and adaptation of technologies to local 
human and natural resource requirements. This requires capabilities beyond 
the abilities of local PVO staff, i.e., local personnel training in the use 
of a particular technology. 

Thus, a major PVO weakness is in technology need identification and 
searches. There appears to be a need for better backs topping and a streng- 
thening of network linkages. 

A second PVO-AT process weakness *s in the testing, assessment, and 
dissemination of AT experience. Few PVO-AT projects have been extensively 
documented, and even fewer have been systematically monitored or analyzed. 
Yet it is necessary for technology centers and clearinghouses to have ac- 
cess to proper documentation of PVO-AT experiences, if information is to 
be built from experience and disseminated effectively. 

PVOs in general should not be expected to extensively test, evaluate, 
and disseminate technologies. Their resources are limited and their 
operational modes are action oriented. 


Several PVOs stated that a significant bottleneck in technology center 
utilization is that the centers often treat only the "hard" technologies. 
They do not treat the small farmer's or businessman's problems as systems 
requiring comprehensive approaches. Organization-building, economics, 
cultural considerations and management are inseparable from the "hard" 
technologies of machines and equipment. Indeed, an overall development 
weakness is that the "softer" technologies are often ignored or dealt with 
inadequately in project design and implementation. The "soft" technologies 
need to be better monitored, assessed, documented and disseminated. This 
requires exapnsion of the scope of backstopping and information network 

While PVOs have their weaknesses they also exhibit certain strengths 
which other development entities lack. FoH example, PVOs have far more 
flexibility than do government and bureaucratic entities. They can ex- 
periment more easily with new projects, without excessive bureaucratic 
justification and political and foreign policy implications. They demon- 
strate a history of working in rural areas with the poorest majority and 
have built up a good reservoir of experience. In fostering efforts to 
develop and use AT, it would certainly be worthwhile to tap that reservoir 
of knowledge. Better backstopping linkages and dissemination would serve 
this aim. 



A. General 

Examining the relationships of "appropriate technology" and "private 
voluntary organizations" is a bit like considering the possible associa- 
tion between "good recipes" and "people who live in houses." 

Appropriate technology in essence means "good" technology — 
technology which both works and serves desirable social and economic 
aims. It thus covers a vast and varied terrain. Private voluntary or- 
ganizations are indeed a heterogenous group of entities. They are of 
several different types when classified by aims, forms, and methods. 
They do different kinds of things. They work in different places. Many 
of them are concerned more with humanitarian assistance than with the 
development, identification, assessment, application, and dissemination 
of technology. 

Yet there is an important (though not exclusive) nexus of these two 
things -- appropriate technology and PVOs as vehicles for promoting and 
applying it. In this report we try to examine aspects of that nexus. 

PVO experience shows once more that technology is always instrumental. 
The word is the label for a certain kind of response to a need or problem 
— a response whose most distinctive quality is determinateness. 

By definition, a technology is a recipe whose ingredients and pro- 
cesses are well-specified, and whose effects can be predicted with 


assurance. Thus the crucial issue of appropria te technology is to find 
or devise and to apply the right kind of technology, when the factors 
which determine rightness are not completely contained within the tech- 
nological recipe. 

PVOs are distinctively interesting as vehicles of appropriate tech- 
nology because they include many organizations with earthy and intimate 
field experience involving the compelling objects of current develop- 
ment concerns, the poorest of the poor. Thus these organizations offer 
special promise of good judgment in defining concrete problems, in 
helping assess the potentials of technology as a source of auspicious 
response to those problems, and in helping deliver such technology. 

Appropriate technology is not the exclusive province of PVOs, nor 
are PVOs exclusively concerned with this subject. But they do play a 
part in harnessing and promoting appropriate technology, and there are 
ways in which that general role might be enhanced. The aims of this 
report have been to sketch the nature of the involvement of these orga- 
nizations in what we have labelled "the process of appropriate techno- 
logy," and on that basis to outline some needs and opportunities. 

Our most general conclusion is quite simple: "Appropriate technology" 
is certainly not the panacea envisioned by some experts. The term itself 
is an invitation to debate. Yet it does contain, or can be given, worthy 
substance. And there is a fruitful relationship between the ideas asso- 
ciated with "appropriate technology" and capabilities and potentials with- 
in the domain of the private voluntary organizations. 


B. Some Specific Findings and Suggestions 

The major findings of this survey identify needs for buttressing 
the supporting resources available to PVOs, and for extracting and 
disseminating lessons from their experience with the development and 
use of appropriate technology. 

A few additional findings and conclusions are worth noting here: 
One set concerns possible needs for additional information: 

1. Are certain promising fields or topics of appropriate 
technology being neglected? Does the field experience 

of PVOs offer guidance identifying jsuch fields or topics? 
From this limited study we are unable to answer this question. The 
matter could, however, be addressed as one aspect of the dissemination 
function discussed earlier in this report. 

2. It would be useful to further examine the potentials of 
AT sources within LDCs. A number of PVOs have expressed 
the opinion that LDC sources of technological expertise 
should be nurtured and used as much as possible, for 
three reasons. 

a) LDC institutions presumably have a greater knowledge 
of their environments than outside organizations. There- 
fore they are likely to provide relevant and workable 
technological inputs. 

b) Reliance upon LDC sources of AT can help build In- 
digenous developmental capacity, which is certainly a 
desirable objective. 


c) LDC sources of AT are less costly than the 

The first of these assumptions is, at this point in our studies, pro- 
blematic. It would be useful to have more information on PVO experience 
with LDC sources of technology, and additional insights into the possibi- 
lities for selectively building and using LDC sources of AT. Inasmuch 
as appropriate technology is not the label for a clearly bounded set of 
artifacts or recipes, it would be necessary to determine, through prac- 
tical inquiry, what concrete AT needs and opportunities might be best 
served through LDC sources, and how this might be done in ways involving 

As part of our conclusions we would stress another point: technology 
is not just a synonym for engineering . Appropriate technology encom- 
passes the idea of "soft" technologies, such as ways of organizing and 
operating processes, as well as the more conventional "hard" technologies. 
Appropriate technologies may also be rooted in customs and traditions. 
Certainly, as noted earlier in this report, the vital conventions of 
particular societies and communities can have large effects upon the ap- 
propriateness of a technology ~ e.g., the two-handed plow— which may 
appear to be superior to the existing state of the art, but which may be 
at a given time quite inappropriate for non-technological reasons. In 
general, there is a large potential role for applied social science in 
the broad effort to promote appropriate technology as a means of develop- 
ment. This role is not limited to assessing the suitability of technical 
artifacts; it includes contributions to the design of appropriate ways 

74-665 O - 76 - 8 


and means for enacting and disseminating various kinds of technology. 

Finally, we turn once more to the topic of indigenous capacity- 
building. There are many ways of serving this aim. "That is not to 
suggest for a moment that institution building in developing countries 
is easily achieved. Nevertheless, we have always been of the convic- 
tion that unless we can transfer to a given developing country a 
capability which will eventually belong to and be controlled by local 
people, in the long term we have accomplished very little." 

Organizations working in enterprise development offer interesting 
insights into capacity building. Three were interviewed in depth. 
They included ACCION, Partnership for Productivity (PFP) and Technoserve. ' 
Each works with indigenous organizations. ACCION primarily provides 
technical assistance in planning, organizational development, and 
training. PFP is training small business extension agents in Kenya. 
Technoserve's Alenfam cane-sugar processing project, initiated by a 
Ghanaian, identified not only the need for adapted technology but also 
for training local unskilled labor and introducing marketing research 
and development skills for Alenfam managers. 

All three groups believe "appropriate management" is necessary to 
complement "hard" technologies. "The key question is not how to develop 
a particular process or piece of equipment. It is to find ways whereby 
Africans on their own can and will adopt and adapt such developments in 
the interest Qf their own society. Furthermore, this means that these 
developments should be capable of becoming economically useful and viable 


when they are no longer the subject of being introduced by Western 
technicians... " 

The importance of indigenous capacity building, and the significance 
of social, organizational, and economic issues, demonstrate once more 
that the crux of a concern with appropriate technology is not, and can- 
not wisely be, upon engineering. In practice concerns with appropriate 
technology must be molded and blended into concerns with astute problem 
analysis, practical project design, and effective implementation and 




Accion Internationa] 

The African-American Institute 

Af r icare 

Agricultural Coop Dev Intl 

Agricultural Dev Council, Inc 

Agricultural Missions, Inc 

American Dentists for Foreign 

American Foundation for 
Overseas Bl ind, Inc. 

American Friends Service Comm 

The American Lutheran Church 

American Ort Federation, Inc. 

The Asia Foundation 

Board of Intl Ministries 

CARE, Inc 

Cathol ic Rel ief Services 

Christian Children's Fund, Inc 

Christian Church 

Christian Reformed World 

Church World Service 

Codel, Inc 

Columban Fathers 

Community Development Fund, Inc 

Coop League of the USA 

Direct Relief Foundation 




Education Development Center 

Episcopal Church of the US 

Family Planning International 

FCH Services Inc 

Foster Parents Plan 

General Conference Mennonite Church 

Goodwill Industry of America 

Heifer Project International 


Institute of International Education 

Interchurch Medical Assistance 

International Association for the Exchange 
of Students for Technical Experience/US 

International Development Fund, Inc 

International Educational Development, Inc _ 

International Institute of Rural Reconstruction 

International Road Fund 

International Voluntary Services, Inc 

IRi Research Institute, Inc 

WK Kellogg Foundation 

Laubach Literacy, Inc 

Lutheran Church of America 

Lutheran World Fund 

Maryknol 1 Fathers 

Maryknoll Sisters Center 

Meals for Million Fund 






Medical Assistance Programs, Inc 

Medical and Surgical Relief Commission 

Mennonite Board of Missions 6 Charities 

Mennonite Central Committee 

Mennonite Economic Development Association, Inc 

National Association of the Partners of the 
Al 1 iance, Inc 

National k-H Club Foundation of America, Inc 

National Rural Electric Coop Association 

Near East Foundation 

New Eyes for the Needy 

Operation Crossroads Africa 

Oxfa~-A~eri ca 

Pan American Development Foundation 

Partnership foe Productivity Foundation 
USA, Inc 

The Pathfinder Fund 

The Paul Carlson Medical Program, Inc 

The Peope-to-People Health Foundation, Inc- 
Project Hope 

Planned Parenthood Foundation of America, 

International Division of Family Planning 

Private Agencies Collaborating Together, Inc 

Project Concern, Inc 

Project Endeavor 

Research Corporation 

Sudan Interior Mission 

Technoserve, Inc 





Unitdrijn Universal ist Service Committee 

United Church Boord for World Ministries 

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Appropriate Factor Proportions for Manufacturing in 
Less Developed Countries: A Survey of the Evidence 

(By Lawrence J. White,* Princeton University) 
I. Introduction 

The question of appropriate factor proportions in LDCs has emerged 
as one of the most important development problems of the 1970s. High and 
rising rates of unemployment in urban areas pose major political and economic 
problems for LDCs. Simultaneously, employment in manufacturing is frequently 
growing far -nore slowly than the growth of manufacturing output. The high 
capital intensity of LDC manufacturing is frequently cited as the cause of 
these phenomena. Capital-labor ratios for new or proposed industrial projects 
in LDCs are frequently $15,000 or more per worker, and facilities in the 
petrochemical industry can run as high as $200,000 per worker (Morawetz, 1974). 
We shall areue below that the connection between urban unemployment, slow 
growth of manufacturing employment, and high capital-labor ratios is not 
as simple as may appear at first glance. But the high and clearly in- 
appropriate capital-labor ratios frequently found in LDCs are nevertheless 
a genuine and important economic problem. 

A critical set of questions can and must be asked about these 
high capital-labor ratios in LDC manufacturing: Are they necessary? Or 
are there efficient alternatives for LDCs which are more labor intensive 
and hence more appropriate for LDCs? What evidence is available on this 
point? If alternatives are available, why have they not been utilized? 
If alternatives are not currently available, what are the prospects for 



creatine then? What are the best ways of creating them? What do we 
know about the processes and institutions concerned with creating new 
technology, especially in LDCs? 

This paper will provide a non-technical review of the available 
evidence that can shed light on these questions. Other surveys or sum- 
maries that deal explicitly with or touch upon the problem of appropriate 
technology for LDCs have appeared in recent years by Turnham (1971), 
Ridker (1971), Jackson (1972), Morawetz (1974), Acharya (1974), Edwards 
(1974a), Bruton (1973), Westphal (1974), Brown and Usei (1974), OECD 
(1975), Cline (1975), and Bhalla (1975a, 1975b). But the emphasis of 
each is somewhat different , and none has focused primarily on the evidence 
concerning factor proportions and appropriate technologies in manufacturing. 
Tliut will be the major task of this paper. 

The remainder of this paper will be organized as follows: 
Sect Jan II will provide some background by sketching briefly the patterns 
that many economists would expect to characterize a well-functioning, 
healthy, growing LDC economy. Against this background, the phenomena of 
high urban unemployment, lagging manufacturing employment, and high capital- 
labyr ratios can be put into proper perspective. 

Section III will briefly summarize the a priori arguments con- 
cerning the absence of choice in efficient factor proportions and then 
will offer a suwey of the available evidence. The evidence will be 
organized around three headings: econometric evidence on the elasticity 
of substitution of capital for labor; engineering or process aaalyses of 
the elasticity of substitution and the availability of choice; and anecdotal 
evidence. In addition, separate attention will be given to comparison of 


large and small firms within LDCs, since many observers feel that these 
comparisons shed valuable light on the question of choice- to the opport- 
unities for the use of used machinery, as a means of efficiently lowering 
capital-labor ratios for LDCs- and to the evidence concerning multinational 
corporations and whether they do or do net alter their factor proportions 
in LDCs. This section will also explore the evidence on relative saving 
rates in LDCs, since this is sometimes used as a justification for capital 
intensive methods. And it will examine the possibility of gaining more 
appropriate factor proportions by encouraging more appropriate product 
choice in U>Cs. In this author's opinion, the evidence indicates sub- 
stantial possibilities for labor-capital substitution, both acong processes 
at J caouf! products, particularly when the possibilities for international 
trade ace acknowledged. More appropriate factor proportions are currently 

Section IV then briefly examines the evidence concerning the 
re*s"Ds why currently feasible appropriate factor proportions are not 
chosen. Inappropriate factor prices and the absence of competitive markets 
(which allcw3 the ncn-optimal instincts of the engineer to prevail) are im- 
portant CC'JSes. 

Section V explores the possibilities of developing new products 
and processes in LDCs, to widen the range of technological choice and to 
inc/case ulie productivity of all resources over time. This usually falls the cat<?fi~ry of research and development. Even in developed countries, 
the sy^ a .rv.t±r evidence concerning R&D is quite limited, a* J the LDC 
evidence is corsiderably more restricted. The available evidence will be 
discussed and analysed. Attention will also be given to the role of research 
institutes, multinational corporations, and patent systems in creating new 


knowledge and transferring existinp knowledge from the developed countries 
to the LDCs. 

Section VI will offer some conclusions from this eurvey. 

Before proceeding further, we should offer a few definitions 
that may clarify the discussions in the following sections. By a 
"technology," we will mean all of the known efficient ways of producing 
a product or process. Thus, in a favorable caee there may ba many 
efficient capital-labor cojrjiinatioos encompassed within a know* technology, 
and better factor utilization for LDCs vould cr?ly require Er«ing f.o the 
lowir ^pital-labor ratios within the known technology; this is the evidence 
oi' vhich Section III largely focuses, in &r, lutifavowoblc case, eh*va may 
b*. orly «ue curreutly known feasible factor rrtlo (usually capital Intt-osivc) 
ar'i uvna /•.(.■» k -cpi:iate factor combinations for LDCa will have to ba newly 
dinccvercd. This would be considered to be new technology (ao would, of 
course, the diacovery of new production procecses that were uson* GiTtcicut 
iu u3inR less of all factors to product a unit of output) ; thi3 Is the 
subject of Section V. The quest for appropriate factor proportions for 
IDCrs, then, includes both efficient changes within known technologies and 
tha discovery of new technologies. 

Finally, by "appropriate," we mean factor proportions that are 
roughly in line with the overall factor availabilities in an ecouomy. The 
poo^-ar the. i.DO. the less capital (phybical. and human) relative to labor 
vr2 exD*ct to find, and, hence, the more L?.bor intensive th^. ''appropriate" 
factor r>ropo/tion3 wuld be.."" 


II. The Well -Functioning LDC and the Inappropriate 
Factor Proportions Problem 

Let us Imagine an LDC which starts, for whatever reason, with 
low levels of physical capital and human capital per capita and, con- 
sequently, low capabilities of assimilating modern technology. Per 
capita Income will be low. Nevertheless, product and factor markets could 
still be operating competitively and allocating the (very limited) amount 
of resources In an efficient fashion. Since unskilled labor is In relative 
abundance, its wage would be relatively low. With trained skills in relativi 
short supply, the premium for skilled labor of various kinds would be 
relatively Mgh. Similarly, relatively scarce capital would earn a high 
return. Competition and mobility among sectors would ensure that tbs 
returns to labor, skills, and phyoical capital were the same in all sectors 
of the economy. The relative proportions of labor, skills and physical 
capital would not be identical in all sectors of the economy, since different 
sectors have different technologies. Thus, some sectors would be more capita 
intensive than others, but -as long as there were reasonable opportunities fo 

factor substitution, there would be no problem in manufacturing full employ- 
ment of all factors. 

The high returns to skills and to physical capital would Induce 

saving and investment. The increased physical capital would be used to 

equip new additions to the labor force (reflecting population growth) at 

prevailing capital-per-worker levels and also to raise those levels 

generally. The rising levels of capital per capita would gradually raise 

per capita incomes. Wages for unskilled labor would rise compared to the 

returns to the now relatively more abundant skills and physical capital. 

Again, competition and mobility would tend to keep wages and returns equal 

across all sectors. Rising skill levels would Increase the assimilation 


of advanced technology, raising incomes yet further. And the addition* 
to huaen end physical capital would tend to be spread uniformly across 
sectors, although differences In technologies and In human abilities and 
proclivities would rule our complete uniformity. Again, competition would 
ensure this relative uniformity of the additions. 

The pattern of expansion of various sectors of the economy 
(e.g., manufacturing, agriculture, services, etc.) would depend on the 
pattern of tastes with rising Incomes, on technologies, and on the possibi- 
lities for international trade. We would expect to see manufacturing grow 
faster than the overall economy until high Income levelc vere reached. 

Let uc now focus more closely on the manufacturing sector. 
Vfages In manufacturing (corrected for the cost, of living) vculd tenu to be 
■Bwa or leeo equal with wages In other sectors of the economy. Iacveossa 
in tha amount of capital per worker — capital deepening — would take 
place relatively gradually, at a pace basically consistent with tam capital 
deepening taking place In the rest of the economy. If serious unemployment 
were somehow to appear, two effects would follow: There would be downward 
pressure on wages, and the process of capital deepening would temporarily 
halt until the unemployment had disappeared. It would be less profitable 
to add more capital to existing workers (because of diminishing returns 
to capital) tnsn to equip new workers (from the ranks of the unecployed) 
at existing capital-per-worker levels. 

Finally, as manufacturing output rose, we would expect manu- 
facturing emrioyoent to rise less rapidly, even in this well functioning 
economy, for three reasons: the gradual physical capital daepenlng, 
gradual human capital deepening, and technological change. All three would 


raise the output per worker and hence cause employment growth to lag 
behind output growth. A rough estimate of this Increased productivity 
factor would be 3%. Thus, if overall manufacturing output were growing 
at a rate of 8X, we would expect employment to rise by only 52. Only if 
there were unemployment (so that capital deepening did not occur), no 
increases in skill levels, and no technological change (or only labor- 
augmenting technological change) would we expect employment to rise as 
rapidly as output. 

With this as background , we can now see the connection between 
urban unemployment , slow employment growth rates, and capital-intensive 
manufacturing establishments. As we have just argued, the lag of employ- 
ment growth behind output by itself is not cause for concern. It is the 
existence of a differential in growth races in the presence of substantial 
urban unemployment and (even when open unemployment is low) the existence 
of differentials in excess of roughly 3% that are causes for concern. 
New manufacturing projects requiring $15,000 per worker in investment, 
when the current average capital per worker is less than one-tenth of that, 
again indicates that the economy Is not functioning in the smooth manner 
of the model. 

Finally, the relationship of urban unemployment to these nroblems 

needs to be clarified. Many economists have come to believe that the 

large real wage differentials between the urban modern sector and rural 

can explain much of the urban unemployment, 
areas/. Workers from the countryside are willing to migrate to the cities 

and sustain periods of unemployment, in order to get the chance to get a 
high wage job. The high urban wages are non-competitive, in the sense 
that the unemployment pool would otherwise drive them down, but a combination 


of legal minimum wages, union oreasures, government required fringe 
benefits, and other government pressures keep the wages high. If this 
view of the urban unemployment problem is correct, then the high capital - 
labor ratios in manufacturing, while not helping greatly in solving the 
problem, are not directly responsible for it. (To the extent that the 
high wages discourage the use of labor intensive processes, the high capital- 
labor ratios are another consequence, along with unemployment, of these high 

wage policies. See Section IV.) Even if lover capital-labor ratios 

prevailed and employment grew faster, the unemployment would persist as 

long as the urban-rural real income differential persisted. Only if manu- 
facturing employment grew fast enough, so that enough people were pulled 
out of the countryside so that incomes in rural areas rose clor-e to 
•irban levels, would the unemployment problem disappear. Thus, the high 
capital-labor ratios for new manufacturing in the face of high urban un- 
employment can be seen as an indication that the system Is not functioning 
properly, but the former cannot really be seen as a cause for the latter. 

Finally, it may be instructive to see the direct effect of high 

capital-labor ratios for new manufacturing projects. Let us suppose that 

an LDC has a per capita income of $500. The country has a current population 

of 1,000 (for easy computation), growing at 3% per year. Current GNP is 

$500,000. If the country is investing 18Z of GNP, perhaps 

12Z would be available for net new investment (the remainder covering the 

replacement of older, worn-out capital). Thus, $60,000 would be currently 

available for net new investment. With a population of 1,000, the labor 

force will be around 400. Average capital per worker in the entire 

might be $1,000. If the labor force is also growing at 3%, 12 


workers will be added to the labor fcrce. 

Now suppose th?.t new manufacturing projects require a relatively 
high capital-labor ratio — s?r, $15,000 per worker. The available 
investment funds would only stretch as far as equipping four new workers; 
i.e., only one-third of the new workers would be equipped; the remainder 
would have no capital with rifddl they could work and presumably would be 
unemployed or underemployed. Of, if we could equip all of the new workers 
at the prevailing $1,000 capital per worker level, we would have funds 
remaining to provide only three and one-half workers with the capital 
intensive manufacturing jobs. Thus, if unduly capital-intensive aanufacturi 
processes are chosen, not only will canital deepening fail to take place 
among the existing labor force but at best only a quarter or a third of new 
entrants into the labor force can be provided with the high productivity 
capital intensive jobs. With only a small fraction of the overall labor 
force benefiting from the new investment, a small industrial labor elite 
may well develop. And, if there are efficient low capital-labor alter- 
natives so that the new investment could be more or less spread over the 
entire labor force, overall output and income would be higher in this 
latter case, because of the diminishing marginal productivity of capital 
when it is all concentrated on a few workers. Thus, though the high pro- 
ductivity from high capital-labor ratios is the eventual goal of economic 
development, the efficient path to this »oal is gradual capital deepening 
for all rather than sharp capital deepening for a few. 

High capital-labor ratios, then, clearly pose serious economic 
(and social) problems for LDCs. But are there efficient alternatives, or 
are the high ratios a problem that LDCs must live with until alternative 
technologies are devised? It is to that evidence that we now turn. 


III. Alternative Fartor Froportions: The Evidence 
The belief that capital intensive manufacturing processes 
similar to those found in developed countries are the correct ones for 
LDCs appears to have been very strong in the 1950s and 1960s, especially 
by engineers and even by some economists. The major argument in favor of 
them was that they were simply more efficient than any more labor intensive 
alternatives- the latter, it was claimed, would always use more labor 
and more capital per unit of output than would the process with the high 
capital-labor ratio. Thus, though alternatives might exist in a technical 
sense, they would always be found to be inferior. Statements to this 
effect can be found in the comments of Nicholas Kaldor (as reported by 
Robinson [1965, pp. 28-29]), Amln (1969), Barber (1969), Ady (1971), and 
UNECLA (1970). This could also be characterized as a belief in fixed 
proportions (as opposed to factor substitutability) , since the efficient 
factor combination is fixed at the proportions found in developed countries. 
The identification of efficiency with "productivity" (i.e., 

labor productivity) by many International study groups and productivity 

missions in the 1950s and 1960s helped contribute to this view. Though 

low labor productivity could be due to pure Inefficiency (e.g., bad 

managerial supervision, bad organization of work tasks, etc.), it could 

also be due to the efficient combination of labor with low levels of capital 

in poor countries. The confusion of labor productivity with efficiency 

meant that high capital-labor ratios would be associated with efficiency. 

Another strand of argument has claimed that efficient alternatives 

might exist for some processes but that the alternatives are limited and 

hence in practical terms most LDCs are faced with little or no alternatives 

74-665 O - 76 - 9 


to high capital-labor ratios for most manufacturing processes (Stewart, 
1972; 1974). Others, like Baranson (1969b, chs 2,3; 1972) and Strassaan 
(1968, pp. 93-102, 155-157) have argued that high levels of mechanization 
are necessary to ensure high levels of quality (e.g.,; in machined products) 
or can substitute for managerial skills in organizing and supervising 
workers, skills which are even in shorter supply in most LDCs then is 
capital (Hirschman, 1958, ch. 8). 

A completely different line of argument favoring capital intensl 
technologies has rested on alleged saving and reinvestment rates by 
different economic groups. As argued by Galenson and Leibenstein (1955), 
capital intensive technologies would mean high returns to capital, and 
capital owners have higher saving and re-investment rates than workers. 
Hence, even though there might be efficient labor intensive methods 
available, capital intensive methods should be chosen because reinvestment 
would be greater and the pace of industrialization would proceed faster. 
This argument clearly hinges on empirical evidence concerning savings 
rates by different groups, a topic to which we shall return later in this 

We now turn to the evidence, In one sense, it is easy to provid 
evidence that developed country capital-labor ratios are not the only 
alternatives available. A glance at any LDC industrial census which 

contains capital data will reveal capital-labor ratios that are usually 

a third of those In the U.S.; and this Is in spite of the fact that LDC 

rates of capacity utilization are usually below that found in the U.S., 

thus raising the LDC capital-labor ratios above what they would be with 

better capacity utilization (and hecce more labor employed). But a 


believer In the superior efficiency of capital intensive methods would 
probably not be convinced by this kind of evidence. He or she might well 
argue that the LDC methods are inefficient (old, antiquated, Improperly 
conceived) and/or that the over-manning of otherwise efficient capital 
equipment la occurring because of employment pressures in LDCs; pro- 
tectioniat policies in LDCs buffer these inefficient production unite 
from more efficient competition from internal or external sources. Or, 
they might argue that the LDC methods are efficient only for the small size 
of the LDC markets and that larger volumes could be produced more efficiently 
with more capital intensive methods. This scale argument is one that we 
shall return to below. Accordingly, a more systematic investigation than 
just a casual perusal of LDC Industrial censuses is needed. We shall 
discuss six kinds of evidence :(j) econometric investigations of the elasticity 
of substitution between labor and capital "^engineering or process analysis 
of substitution possibilities vanecdotal evidence on substitution^ evidence 
concerning big firms versus small finasY-^evidence on the use of used 


machinery: and^evidence concerning multinational corporations. Evidence 
on saving rates and hence the desirability of captial intensive methods, 
even if they are not efficient, will be reviewed. And the question of 
substituting more labor-intensive products in consumption will also be 

1(1) Econometric investigations of factor substitution 
There have now been a large number of efforts to use LDC data, 
usually from industrial censuses, to try to measure the degree of sub- 
stitutability between capital and labor. All of the efforts Involve 
trying to measure the elasticity of substitution (i.e., the percentage 


change in the capital-labor ratio in response to a change in the factor- 
price ratio) in a constant-elasticity-of-substitution production function 
involving capital and labor. Since the CES production function is non- 
linear and cannot be estimated through ordinary least-squares estimation 
techniques and since data on capital is frequently not available or not 
considered reliable, an indirect method is used. If the logarithm of 
output per worker is regressed against the logarithm of the wage, the 
coefficient on the latter variable is an estimate of the elasticity of 

substitution. Most studies use- this form. (Some of the studies use a 

direct demand for labor/ in which labor is regressed against the wage, 

output, and other variables.) A few regress the ratio of output-capital 
ratio against the return to capital (both in logarithms) of the capital- 
labor ratio against the wage alone or the ratio of the wage to the return 
to capital (again in logarithms) to provide alternative estimates. These 
estimates have been made for the whole of manufacturing in single countries 
and for individual sectors within manufacturing, for both time series and 
cross-sections, and for cross-sections for sectors across different countriei 
Table 1 lists the countries, the empirical studies, and their dates of 
publication. As can be seen, a wide variety of countries have been covered 
by these studies. 

It is difficult to characterize the results of these studies. 
The estimates of the elasticity of substitution are, with only a few 
exceptions, positive, indicating (if one accepts the methodology as valid) 
that efficient factor substitutability is possible and that the fixed 
proportions view of the world Is incorrect. The estimates tend to clump 
between 0.5 and 1.2, but some studies find values appreciably above and 


Table 1: Econometric Studies of the Elasticity 
of Substitution of Labor for Capital 
in LDCs 

International cross-section 


Boon (1969) 
Bruton (1972a; 1972b) 
Courtney and Leipziger (1974) 
Daniels (1969) 
Diaz-Alejandro (1973) 


Bruton (1972b) 
Eriksson (1969) 
Katz (1969) 


Bruton (1972b) 
Eriksson (1969) 
Tyler (1974) 


Behnnan (1972) 
Bruton (1972b) 


Bruton (1972b) 
Eriksson (1969) 

Costa Rica 

Eriksson (1969) 

Dominican Republic 
Bruton (1972b) 


Abed (1975) 

Leith (1974) 
Roemer (1975) 


Bruton (1972b) 


Bruton (1972b) 

Diwan and Damodar (1968) 

Setburman (W71) - 


Table 1 (continued) 


Bruton (1972b) 


Bruton (1972b) 


Tidrick (1970) 
Williams (1974) 


Harris and Todaro (1969) 

House (1973) 

Kin* (1972) 

Maltha (1973) 

Senga (1973) 

Weeks (1974) 


Bruton (1972b) 


Bruton (1972b) 


Bruton (1972a) 
Eriksson (1969) 
Ibister (1971) 
Witte (1973) 


Oyelabi (1971) 


Ahmed (1975) 
Husain (1974) 



Bruton (1972b) 
Clague (1969) 
Witte (1971) 


Bruton (1972b) 
Sicat (1970) 

Table 3 (continued) 

Williamson (1971a) 
Williamson (1971b) 

Puerto Rico 

Reynolds (1965) 

Southern Rhodesia 
Bruton (1972b) 


Demirigil (1971) 



below these' values. Cross-section studies tend to find higher elasticities 

than do tine series / *& elasticity above 1.0 iiiplies that not only 

will a fall in wages induce an increase in employment (aa labor is sub- 
stituted for capital) but also that labor's share of output will increase. 
There will also be an extra effect from the added demand for the final 
product due to the fail in price induced by the decrease in wages, so that 
the total wage bill can increase even if the elasticity of substitution is 
below 1.0. 

The problems — in concepts, data, and econometric technique — 
have been reviewed by Nelson (1968), O'Herlihy (1972), Morawetz (1974), 
Acharya (1974), Gaude (1975), and Morawetz (1976). The data are bad, the 
CES form may not be the correct one, the time series studies may not in- 
clude lags properly, the profit maximization assumption may not be a good 
one, the assumption of competitive markets is surely not true, all 

firms may not be using the same technology, the cross-country studies may not 

correct exchange rates, 
use the /the cross-section observations (especially across countries) may 

not be using comparable industries, the level of capacity utilization is 

usually not held constant, all labor and all capital are assumed to be 

uniform and to be the only factors of production, to name a few of the 

problems. It is easy to be sceptical of the results. Pack (1972), 

for example, has argued that the time series regressions may well Just 

be showing that value added per worker increases as capacity utilization 

Increases and simple technological improvements occur over time and that 

wages increase as workers succeed in capturing some of that increase in 

productivity. Thus, rather than showing a causality between substitution 

away from labor and wages, the regressions may be showing a reverse causality 

between wages and increasing productivity. Cross-section regressions 


may be capturing a similar efface , as could the regressions using capital- 
labor ratios. And Mora^-etz (1976) has shown that there is little consistency 
among the cross-section studies in their rankings of common industries by 
estimated elasticity of substitution. 

Leaving aside, then, the data and econometric problems which 
are always present to a greater or lesser degree in any empirical work, one's 
evaluation of the worth of these regressions does hinge crucially on how 
one views the causality between wages and capital-labor ratios. If one 
already believes that capital-labor ratios are efficiently flexible and 
that entrepreneurs do respond to factor price incentives, then the results 
of the regression do provide support for this view: making labor more 
expensive and capital cheaper tends to cause factor substitution towards 
greater capital intensity. On the other hand, if one believes that efficient 
factor proportions are more or less fixed ( and that observed differences 
are largely due to random elements or to pressures to increase employment) 
and/or that wages respond to higher levels of productivity, then the 
regressions may not support the claim of substltutability. In this author's 
view, both effects are probably occurring, and the econometric evidence 
probably does give some support for the position that efficient labor- 
intensive alternatives for manufacturing exists. But this is probably more 
an act of faith thaa a hard conclusion from incontrovertible evidence. The 
believers in fixed proportions are unlikely to be convinced. 

(2) Engineering or process analysis studies . In these kinds of 
studies, researchers investigate individual manufacturing processes or 
individual products. The investigators usually use engineering or other 
technical information to determine the inputs necessary to produce a given 


volume of products (or to pxbcnss a cjiven volume of raanuf actured items) . 
A principal part of the investigation is to see if there are alternative 
means of producing that sane volume; i.e., if more workers and fewer 
machines (or, more usually, simpler and cheaper machines) can produce the 

same volume as fewer workers and more machines. This is, of course, the 

heart of the substitutability question. 

Table 2 lists the products and processes for which these studies 

have been done. The list is not long, but an important result does 

emerge from these studies: Factor substitutability does seem to be quite 

possible, and the differences in factor ratios can be quite substantial. 

Timmer'8 (1975) study of rice milling and marketing systems found four 

efficient alternatives, of which the most capital intensive required 

$65,000 investment per worker and the most labor intensive required $700 

per worker. The ECLA study of cotton textiles reported by UNID0 (1969, p. 

44) shoved a choice of efficient techniques ranging from $6,600 investment 

per worker to $21,500 investment per worker; Pack's (1S74) study argues 

that the lower limit is closer to $1,100 per worker. Further, Pack (1974) 

was able to relate the efficient factor combinations observed in operation 

to the wage rates and returns on capital also present and thus to calculate 

elasticities of substitution. Of six industries observed, all had positive 

elasticities of substitution, and five were above 1.0. 

Of course, not all technically efficient factor combinations, 

even labor intensive ones, would be economically efficient for LDCs. Just 

as a factor combination could be too capital intensive, it could also be 

too labor intensive. For example, suppose that a given volume of output 

can be produced with one worker and a $10,000 machine or by 100 workers 


Table 2 : Engineering and Process Analysis 
Studies Relevant to LDCs 


Bhalla (1964) 

Hewavitharna (1970) 

Pack (1974) 

Pack (1975) 

Sen (1972, Appendix C and D) 

UNIDO (1969, p. 44) 

Grain Milling 

Bhalla (1965) 
Pack (1974) 
Timer (1975) 


Pack (1974) 

Pack (1974) 

Pack (1974) 

Sugar 'lanufacturing 

Baron (1975) 
Hewavitharna (1970) 
Pickett et. al. (1974) 

Jute Processing 

Cooper and Kaplinsky (1975) 

Can 'ianufacture 

Cooper, et. al. (1975) 

Cement Blocks 

Stewar t (1975) 


Table 2 (continued) 


Hewavithama (1970) 

Metal Working Processes 

Boon (196A- 1975) 

Morse and Staley (1965, pp. 213-219) 

Wood Working Processes 

Boon (1964) 


and a $9,909 machine. The litter combination is technically efficient, 
since it does involve a trade-off of labor and capital. But only if one 
was sure that the opportunity cost of labor was zero would the latter 
option make economic sense. In fact, however, in virtually all cases, at 
realistic opportunity cost wage and interest rates for LDCs, labor intensive 
or intermediate alternatives are economically sensible. LDCs do not 
appear to be limited to current developed country capital intensive 

There are some limits to these studies and some unanswered 
questions, however. First, the question of economies of scale and whether 
optimal factor proportions change with scale is examined only by Boon 
(1964 1975) and by Stewart (1975). They find that there are appreciable 
economies of scale in many metal machining processes and in cement block 
making and that capital intensive methods are necessary to capture these 
economies. Thus, at low volumes, there are efficient alternatives, and 
relative wage and interest costs should determine the proper technique. 
As volumes increases, input levels grow more slowly, so that unit costs 
fall (for any wage and interest rate) , but this happens to a greater 
degree for capital intensive processes. At very high volumes, the capital 
intensive processes dominate so that at any wage or interest rate it makes 
economic sense to choose the capital intensive processes. The lower the 
wage, however, the higher the volume at which it makes sense to switch 
from the labor intensive to the capital intensive processes. 

I-hy economies of scale should favor capital Intensive processes 
is unclear- it just seems to be a fact of technological nature for the 
particular processes Investigated. To Trhat extent can it be generalized? 


Most of the investigators of product technology do not mention it, and 
it seems likely that this is a phenomenon restricted in significance to 
only some of the processes that r,o into manufacturing a product, like 
metal finishing, and flow processes involving liquids, £Av«e, and containers 
like petroleum refining and chemical production. The Importance of 

setting-up costs for a production run or of the surface area and volume 


relationship of containers dominate here. For other manufacturing 

processes, scale effects seem likely to be much less important. (This 
appears especially true of the peripheral activities mentioned in the 
next section.) Clearly, though, much more needs to be known about the 
relationship between scale and factor substitutability. 

For a product that does embody significant scale effects, LDCs 

face a dilemma. The small market LDC can achieve appropriate factor 

proportions but has high unit costs (but, it must be emphasized, the 

LDC would have yet higher unit costs if it switched to the capital 

intensive method) • the large market LDC has lower unit costs but high 

capital intensity. Only research leading to new technologies that 

would decrease the importance of scale effects or have them apply equally 

to labor intensive methods offers a way out of this dilemma. 

A second open question in these studies is the problem of 

quality. Are capital intensive processes necessary to ensure high quality? 

Stewart (1975) argues that this is the case for cement blocks. The other 

studies though, either claim that quality need not be affected by technique 

or neglect to mention the problem. As noted above, other observers, like 

Baranson (1967; 1969b, chs. 2 and 3, 1972) and Strassmann (1968, pp. 93-102, 

155-157) argue that, particularly in metal finishing processes, machines 


can substitute for skilled labor and foreman supervision in ensuring a 
high, uniform quality standard. Again, we need to know more in this area. 

Finally, on this la^c point, there are other Inputs into the 
production process, and the process studies do not tell us enough about 
them. Baron (1975) and Pack (1974) do account for the differential 
efficiency in the utilization of raw materials of different techniques. 
Unfortunately, it is difficult to tell if this is a serious problem 
generally. Further, is the argument that mechanization is an efficient 
substitute for management supervision skills valid? Unfortunately, there 
is only one piece of quantitative evidence on this point. Clague's 
(1970) study showed that the overall efficiency of Peruvian Industries 
relative to that of comparable U.S. industries increased as capital 
intensity increased • machine paced processes seem to offer less latitude 
for labor inefficiency. The engineering and process studies have not 
thus far been able to quantify this, and so it must remain, with the 
exception of Clague's study, largely an open question. Pack (1972; 1976) 
argues that good management is also needed in order to recognize the 
possibilities for labor-capital substitution and to do the necessary 
innovations to adapt equipment rather than Just accept completely the 
sales pitch of the traveling capital goods salesman from the U.S., Europe, 

I or Japan. But Pack (1975) reminds us that high levels of mechanization 
will require the repair skills necessary to repair the complex modern 

* machinery, and these are usually as scarce in LDCs as the management 
skills that the machines are supposed to replace. The repair skills to 
handle simpler machinery, however, usuallyare in greater supply. 


In all, the enpineorin^: and process analysis studies do 
provide powerful demonstrations of the feasibility of labor intensive 
methods and are probably more convincing than the econometric studies 
of the previous section, but there are still the difficult questions of 
scale, quality, and skill substitution. 

(3) Anecdotal evidence . Under this category we group studies 
that report examples of labor-capital substitution but do not offer 
precisely quantified estimates of the frontier of efficient combination 
in the way that the engineering studies do. These reports can neverthe- 
less offer useful insights in the production processes. 

Fei and Ranis (1972; 1975) and Ranis (1957; 1971; 1973; 1974; 
1975) have documented a number of ways in which labor could be efficiently 
substituted for capital. During Japan's early industrialization, when wages 
were comparatively low, machinery in textiles and other industries were 
run faster and more intensively (extra shifts) ; this meant more frequent 
halts for repair, but repair was a labor intensive activity. The overall 
effect was greater labor intensity and greater efficiency in the use of 
all resources. Thus, even in processes in which mechanization was necessary 
for quality reasons, double and triple shifts greatly decreased the over- 
all capital-labor ratio. Greater use was made of older, used equipment 
from the Uest. Raw material inputs were modified so that more labor 
intensive processes could be used. Ranis reports that similar capital- 
stretching^ labox intensive techniques are currently being used in 
Korea and Taiwan in textiles, electronics, woodworking, and other industries 
He further points out that even for products in which there may be 
technical rigidity in some main production processes, there are. always 


peripheral processes like materials h-indlin" and packaging, which 
can ho done efficiently wltli ' .il»or Intensive method n. so th>»t the over- 
all production of the product still has scope for labor-capital sub- 

Similarly, Pack (1972;1976) reports examples of labor-capital 
substitution in consumer goods manufacturing in Kenya. He too notes the 
possibility of factor substitution in peripheral activities, but also 
notes quality problems: human handling of fruit inputs into food manu- 
facturing may lead to higher rates of spoilage or breakage. He also notes 
s scale sensitive process: container filling. At high rates of volume, 
some container filling processes would be worth automating regardless of 
wage levels. 

Other reports of LDC production processes that are more labor 
Intensive than those of developed countries include Strassman (1967; 1968, 
ch. 6), Baerresen (1971), Sharpston (1973), ILO (1972b, pp. 141, 446-450), 
Wells (1973), Boon (1975), Baranson (1967, pp. 59-62: 1969, pp. 4-7), Mason 
(1970), and Armas (1973). But are the adaptations efficient? In virtually 
all cases, the researchers report that the greater labor intensity has taken 
place In response to the lower volumes and/or the lower wage of the LDCs. 
This kind of response (as opposed to, say, a report that greater labor 
intensity seems to have occurred at random) does tend to support the notion 
that these are efficient adaptations. Also, Ranis' examples include firms 
that were facing substantial competition, either internally or in export 
markets: again, there is a presumption that this would tend to be forcing 
efficient adaptations. Finally, Ranis, Pack, the ILO, and Strassmann con- 
nect the adaptations with good, flexible management- again this argues for 

74-665 O - 76 - 10 


efficient adaptation. 

The anecdotal evidence then, points in the same direction as the 
earlier evidence: greater labor intensity is not only feasible but is in 
fact occurring in some LDCs. It does, hovever, seem to be closely tied to 
good management. 

(4) Big firms versus small firms . It is widely acknowledged 
that snail firms are more labor intensive than large firms. Many claim 
that the small firms have adopted this greater labor intensity in response 
to the different factor prices that they face compared to large firms: 
cheaper labor and more expensive capital. This kind of response, they 
argue, shows that it is an efficient adaptation and hence that efficient 
factor substitution is quite feasible. 

But are the small firms efficient? A counter-argument would run 
as follows: The small firms may have lower capital-labor ratios, but they 
are inefficient , in the sense that they use more labor and more capital 
per unit of output, than do lar^e firms. They are still able to sell goods 

in the same market as the big firms, though, because their wage costs are 


so much lower' i.e., because the labor markets are imperfect. Hence, 

the greater labor intensity of the small firms is not necessarily an 
efficient adaptation. 

The output-capital ratio of the stall firms compared to the large 
firms is critical to deciding this point. The evidence is mixed: Ranis 
(1962a) finds that small firms in Pakistan had higher capital output ratios 
than large firas; Mehta (1969) finds the same to be true for India, as 
does Marsden (1969) for a number of countries. But Dhar and Lydall (1961) 
find the opposite to be true for India, as does Sandesara (1966; 1969). 


Unfortunately, truly valid coraparisions between large and small 
flrm9 are very difficult to construct. Not only must the same final 
product be produced by both firms, but they must be vertically integrated 
to the same extent. For example, suppose that large firms produce more 
of their own inputs or do nore of their own distribution than do smaller 
firms. These extra activities probably involve different factor pro- 
portions than the main production processes that are being compared. Thus, 
we could observe different capital-labor ratios and different output- 
capital ratios between large and small, even if the main production processes 
were identical, and might mistakenly conclude that these indicated differences 
in efficiency. It does not appear that any of the studies cited above 
have tried to correct for this problem. 

Overall, then, we can learn little from the comparisons between 
large and small firms. The latter are surely more labor intensive, but 
we simply cannot conclude anything about their efficiency. If labor and 
product markets were competitive, the mere survival of the small firms 
would strongly imply that they were efficient. But, since neither set 
of markets qualifies as competitive, little can be decided. 

(5) Used machinery . Second-hand machinery is frequently re- 
commended as a way for LDCs to reduce capital-labor ratios. The theoretical 

argument runs as follows; Profit maximizing firms should find it worth- 
while to replace existing machinery \rith new machinery either (a) when there 
is enough technological imporvement so that the average total costs of 
output produced by the new machines are below the marginal costs of out- 
put produced by old machines or (b) in the absence of technological im- 
provement, when future discounted maintenance costs exceed the price of 

the new machines plus / future discounted maintenance costs. In both 


cases, replacenent depends on comparing one set of costs that have a 
heavy labor weight with another set of costs that have a heavy capital 
element. Thus, a high ua.",e economy will find it economically rational 
to replace machinery much sooner than would a low wage economy, and low 
"ac,e LDCs should find worthwhile the purchase of used machines that 
developed countries find marginal. In the developed country, if there 
is an active market in used machinery, the price of the used machine 
would have to fall by enough for a developed 

country buyer to find it worthwhile to consider the used machine as an 
economic alternative to the new machine. At that price, the LDC buyer 
will surely find the machine more worthwhile (except for added transportatio: 
costs), because of the latter 's lower wage costs. 

The counter argument (often presented by those who believe in 
fixed proportions), is that good markets in used machines do not exist, 
used machines are a very risky proposition, spars parts may not be 
available, or the machinery is so technologically obsolete that the use 
of the machines is inefficient compared to new machines. 

What is the evidence? First, it should be noted that organized 

markets in used machinery are present in the developed countries. Brokers, 

catalogues, and trade associations of used machinery dealers do exist. 

Second, there is a fair anount of evidence that used machinery is employed/ 

in LDCs: Cooper and Kaplinsky (1975) in jute processing; Pack (1975) in 

cotton textiles- Boon (1975) in engine machining; James (1973) in paper 

Pack (1976) in a number of consumer goods industries in Ki 
manufacture Armas (1973) in pineapple canning /and Strassmann (1968, ch. 

6) for a number of Mexican industries. Cooper and Kaplinsky do stress the 

risk element in buying used machines* it takes special skills to be able 

to tell which ones are the "lemons," and manufacturers' warranties will 


no longer apply. Indeed, all of the studies stress the need for good 
management and engineering sMlls ns a necessary adjunct to the proper 
choosing, adaptation, and use of second-hand machinery. 

There is one additional example of an industry in which active 
second-hand markets exist in developed countries, spare parts are 
available, and technological change has not been rapid: motor vehicles. 
There constantly are large stock of used cars and trucks available for 
sale in the U.S. and Europe. It is well known that, particularly for 
cars, prices depreciate faster than pure utilitarian usage considerations 
would dictate. Spare parts are usually quite available. And technological 
change since World War II has been quite slow. It would appear that 
many LDCs would do well to forego importing new vehicles on attempting 
the domestic production of these vehicles and instead to buy and import 
large quantities of used vehicles (Meyer, 1966). Repair requirements 
would be greater for a fleet of vehicles bought used rather than new, but 
there are skills that are present in most LDCs and probably should be 
further encouraged. Parts, if not available, could be manufactured locally. 
Both domestic and foreign exchange resources would be saved for better 
usee, and effective capital-labor ratios in transportation would be lowered. 

Again, the evidence on used machinery does show the possibilities 
of lower capital-labor ratios. 

(6) Multinational Corporations (MNCs) . The MNCs are frequently 
pictured as the special villans of the appropriate technology effort. 
They are, so the argument «oes (Vaitsos, 1975; Stewart, 1973a, 1973b; 
Streeten, 1972b 1973) , tied to their capital intensive technology in the 
developed countries. That is what they are familiar with; that is what 
their product quality and trademark image is frequently based on. It is 


frequently too risky and costly for them to try to change their technology 

for LDC conditions. They ignore the possibilities of using local raw 

materials inputs. And, even if they were considering adaptations, they 

frequently pay higher wages than do locally-owned firms and they can 

obtain their capital abroad at cheaper rates, so they would have less incentive 
to adapt. 

The counter argument is presented by Pack (1972- 1976). As 
noted above, he argues that good management appears to be necessary to 
recognize and utilize the possibilitiss of labor-capital substitution. 
And the MNCs frequently have the best management around. Even if they pay 
higher wages than local firms, their wages are still considerable lower 
than those in the home country, and thus there is a strong incentive for 

What is the evidence? Kere we must be very careful in evaluating 

it. A number of interview and questionaire surveys, of IINCs, by Reuber 
Hughes and Seng (1969), 

(1973), Baranson (1971), Yeonan (1968),/ and Gregory and Reynolds (1965) 
have concluded that only a modest amount of technological adaptation has 
taken place, and that has been mostly in response to lower volumes, not 
local factor costs. This evidence has been widely cited by those who 
see the MNCs as villains. 

But there is an interesting paragraph in Boon (1975, p. 270) 
that is worth recounting at some length. He describes an interview at an 
engine plant owned by an MNC in Mexico. At the beginning of the interview, 
the management assures Boon that the Mexican plant uses exactly the same 
technology as that used in the parent plant in the developed country. But 
as the interview proceeds and Boon tours the factory, it becomes clear 
that in many respects the factor proportions are different. The main 


machinery processes are automated, but second-hand equipment is used. And 
all of the auxiliary processes, like packaging, handling, transporting and 
storing, are done much more labor Intensively. Perhaps interviewers get 
told what the interviewees think they wish to hear, or what the interviewees 
wish to believe 1 

Contrary to these surveys, it appears that any researcher who sticks 
his head into an MNC facility in an LDC and looks around is likely to find 
substantial adaptations of capital-labor ratios, particularly in auxiliary 
processes. Thi3 is the case for Boon (1975), Pack (1972, 1976), Barenson 
(1967, pp 59-62); Strassmann (1968, chs. 5 and 6), Mason (1970), ILO (1972b, 
pp. 446-450), Uells (1973), and Armas (1973), Ranis (1971, 1973, 1974, 1975), 
Hellelner (1973a; 1973b), and Baerresen (1971) find MNCs adapting to labor- 
intensive processes for export processes. Mot all MNCs adapt. Pack (1972) 

does cite an example of/home office insisting that more capital-intensive 

processes be maintained, even though the branch manager recognizes that the 
labor intensive methods would be more profitable. And not all of the MNCs in 
Strassmann 's sample adapted their technology. But a higher fraction of the 
MNCs in Strassmann' s sample adapted their technology than did locally owned 
firms. And a higher fraction were buying and using second-hand machinery. 
Again, similarly to Pack's argument, the importance of good flexible manage- 
ment possessed by MNCs is stressed by Strassmann and by the ILO (1972b) 
mission to Kenya. 

It appears, then, that both locally controlled firms and MNCs can 
and do adapt their factor proportions. But which group is more likely to 
ado jt the more labor-intensive methods? In examining comparative evidence, 
it is necessary to exclude economy-wide comparisons. Here, we will always 


find that NNCs are more capital intensive than locally controlled firms. Th 
is to be expected, since the MNCs do have a comparative advantage in capital 
intensive products. The critical question concerns comparisons within an 
industry in which both groups are present. Strassmann, Pack, and the ILO 
mission to Kenya all find the MNCs to be more labor intensive; they explain 
this on good management grounds. Ilason (1970; 1973) finds that for a group 
of matched pairs of firms, U.S. controlled firms tend to be somewhat more 
capital-intensive than locally owned Philippino or Colombian firms; he 
explains this on the grounds that the U.S. firms pay higher wages and have 
access to cheaper capital. Radhu (1973a) also finds foreign firms to be 
more capital intensive than locally owned Pakistani firms. But Cohen (1973; 
1975) finds no significant differences between foreign and Korean firms 
producing for export markets. The evidence is clearly mixed. 

Although the IINCs may not be the heroes of appropriate technology, 
they appear to be far from the villains that many make them out to be. 
They have the management expertise, and they are frequently willing to use 
it to adapt to labor intensive processes. Again, there is adequate evidence 
of factor substitutability. 

(7) Factor proportions and savins rates . An argument cited earlier 
in favor of capital intensive methods is that they xrould raise the income 
share of capital owners, who are supposed to have higher rates of saving and 
reinvestment than do workers; the pace of industrialization would thereby 
be quickened. This kind of argument, of course, presupposes that government 
taxation of labor incomes for saving purposes is not feasible. But, ignorin 


this, what do we know about savings rates? 

The evidence reviewed by Mikasell and Zinser (1973) does indicate 
that saving out of labor income is very low; the marginal propensity to 
save rises with income, and the saving rate out of profits is high. But 
Oshima (1971) argues that added income to low-wage workers might reduce 
the dis-saving of many. If we turn to the saving rates of firms of different 
capital intensities, Ranis (l°62b) provides evidence that medium size (less 
capital intensive) firms have higher saving and reinvestment rates per unit 
of output than do large firms. Appavadharrlu (1974) argues that small 
firms in India have higher saving rates than large firms. 

The evidence, then, is somewhat mixed. And, given the possibility 
of government taxation as a form of saving, the income distribution, saving, 
and reinvestment argument appears to be a weak reed on which the case for 
capital intensity might rest. 

(8) Product substitution . Some researchers have argued that, in 
addition to the wrong factor proportions being used, the wrong products 
are being consumed (Streeten, 1972c; Stewart, 1973b; 1974); Hughes, 1974), 
Consumer durables like automobiles, washing machines, and air conditioners 
have capital intensive production technologies. More appropriate products 
and services, like bicycles, launderers, and coolers would be more labor 
intensive. (Ue will leave the issue of the development of new products for 
LDCs for Section V. ) Frequently it is claimed that this is the result of 
an inappropriate income distribution in LDCs — too heavily akewed toward 
the rich — and that a radical redistribution of income is necessary. 


Though file Irtst ou;»«»eotion -vay be recommended or ethical grounds, 
it appears that income redistribution would likely have only a tiny effect 

on employment. A number of macro-oconomic models of LOCs, reviewed by 


Morawitz (1974) and Clinc (1075), all come to that conclusion. 

A less radical alternative would be simply to levy excise taxes on 
capital intensive goods which have labor intensive substitutes. Indonesia 
(Sadli, 1?74) taxes "raor!ern ; ' manufactured cigarettes more heavily than tra- 
ditional kretek clove cigarettes. But India (Baron, 1975) tries to encourage 
the consumption of capital intensive white sugar (as compared to the less 
refined gur ) by keeping its price lov. 

Another way of encouraging the production of appropriate products is 
to orient the economy toward exports (Ranis 1971; 1973; 1974; 1975; Pel and 
.lanis, 1975; Kelleiner, 1973a; 1973b; Porter, 1972; Balaasa 1971; Baerresen, 
1971; Sharpston, 1975; Little et al. , 1970). Here, labor-intensive goods 
and processes will have a comparative advantage in world markets and hence 
will be the natural choice for LDCa. This is the path that the "success 
stories" of East and Southeast Asia — Korea, Taiwan, Hong Kong, and 
Singapore — and, to a lesser extent, Colombia, Brazil, and Mexico have 

(9) A summary on factor proportions . This section has summarized 
the available literature on the possibilities of labor-capital substitution 
in LDC manufacturing. Each sub-section ha3 presented one aspect of the 
evidence. 3y itself, each sub-section may not appear entirely convincing. 
But together they do paint a rather impressive picture. There do ' seem to be 
plenty of opportunities for more labor intensive methods to be used. And 


there do seem to be opportunities for a more appropriate product mix. The 
ranges of choice are far from complete on both the production and product 
sides. The economist's smoothly curved production isoquant is rarely present. 
It is the task of research and development to increase the range of choice, 
a topic we shall tackle in Section V. But the claim of fixed coefficients 
simply does not offer a satisfactory explanation for the absence of appro- 
priate factor proportions in most LDCs. 


IV. The Causes of Inappropriate Factor Proportions 

The evidence of Section III suggests that the possibilities for 
labor intensive production methods are much greater than the current 
practice in most LDCo . If fixed factor proportions are not the reason 
for LDC capital intensity, Vx'hat explanations can be offered? 

First, the relative price? of capital and. labor are frequently 
badly out of line with their true social worth; a wide variety of 
government policies have made capital artificially cheap in capital- 
short economies, v.'hile labor has been made artificially expensive 
in many of these same economies (Little et al, 1970). Capital is 
made cheaper through government subsidized low interest loans, 
favorable exchange rates or low tariffs for imported capital goods, 

tax holidays on new investments, and accelerated depreciation on 

capital goods. Labor in urban manufacturing has been made more 

expensive through minimum wage legislation, mandated fringe benefits, 

restrictions on the ability to lay off workers, and government 

encouraged union pressures. ^ These lrbor provisions are most likely 

to be enforced in the government sector, in large firms, and in MNCs . 

As we argued earlier, they are a major factor in encouraging high 

urban unemployment . Real urban wages are frequently two or more 

times rural wages.- 5 In a number of countries, the relative 

distortion of labor and capital/ rather than getting better, has 

become worse during the years since the Second World War. Witte 

(1973) estimates that the wage/capital-rental ratio for all of Mexican 

manufacturing rose from an index of 100 in I9U5 to 280 in 196^; 

for Peru, the price ratio for a number of industries rose from 100 

in 1958 to a range of I90-27O. Roemer (1975) reports that the same 

ratio in Ghana rose from 100 to 12 U in 1966 (but subsequently fell to 


90 in 1970). Krueger (197 1 *, ?• 235) reports an appreciable rise in 
Turkey for the period 1955-1970. In a contrary case, Williamson 
(1971) reports a falling ratio in the Philippines for I955-I966: 
this is confirmed by Hicks and McNicholl (1971) and by Baldwin ( 197 1 */ 
p. 1U8 ) . But generally the pattern reported is rising real wages 
in manufacturing in most LDC countries, while capital remains cheap 
or becomes cheaper (Smith, 1969; Knight, 1975; Berg, 1971; Gregory, 

The rising roal wages in LDC manufacturing sometimes receive two 
defenses; both should be put to rest. First, it is 

argued that wages should rise with the increases in productivity 
in manufacturing. Besides mixing cause with effect, this argument 
is wholly inappropriate for an economy with widespread un- and 
under-employment. As long as there is substitutability, greater 
capital shallowing should be encouraged through low wages; only when 
labor grows scarce should real wages rise in line with rising 
productivity. Second, it is argued that in a world of monopolistic 
MNCs which escape LDC taxes through internal transfer pricing vis-a- 
vis the parent company, high wages may be the only way that the LDC 
can capture some of the profits. But the obvious solution to this 
is to improve government taxation and customs procedures and to 
reduce the MNCs monopoly power by introducing more competition 

' (via imports, if necessary) into the domestic economy in which the 
MNC sells or by opening up for wider bidding the extraction and 
export concession that the MNC has. Using wages to try to capture 
those profits is a distinctly inferior and potentially quite 

'■ harmful policy. 

The cheap capital and high wages policies have laudable goals: 
to encourage investment and to raise worker incomes. But their 


inevitable result i s to encourage entrepreneurs to substitute away 
from labor and toward capital intensive processes. The econometric 
studies of the elasticity of substitution, if they are to be believed, 
certainly point in this direction. The engineering and process 
analysis studies, especially Pack's (197^), also tell the same story. 
And much of the anecdotal literature, analysis of small firms, and 
discussion of MNC adaptations do link changes in capital-labor 
ratios to relative factor prices. 

Further, inappropriate factor prices make capital intensive 
goods cheaper and labor intensive goods more expensive, thus 
discouraging consumption of the latter. Not only are the wrong 
processes encouraged, but the wrong products are also encouraged 
(cooper, 1972). 

But factor prices do not seem to offer a complete explanation of 

the existence of inappropriate factor proportions. A second reason 

and especially 
seems to be the strong tendency for entrepreneurs/ engineers to think 

in terms of developed country mechanized technology as the ideal, 
regardless of factor prices. The confusion between high labor 
productivity and efficiency enters here. If markets are non-compet- 
itive, entrepreneurs seem willing to sacrifice some of their potential 
monopoly profits in order to achieve this goal of mechanization. 
Wells (1973) has labeled this the phenomenon of "engineering man." 
The argument also appears in Bruton (1973), Pickett et al (197'0> 
and Ranis (I97U). This appears to be a widely held notion. But 
there has been only one attempt formally to test the proposition. 
irhite (1976?) found that greater 

competition in Pakistani product markets forced industrialists to 
adopt more labor-intensive methods relative to the U.S. "ideal', 1 ; 
industrialists in less competitive markets were freer to pursue 


the it LTHjineorinij goals. 

Third, even in instances in which firms might be interested in 
more labor intensive methods/ those methods do exist, information about 

them is frequently difficult to obtain. Search is costly, the firms 

are familiar with the capital-intensive processes, and the absence 

of competition may reduce the incentive to search. Or even with 

search, they may simply fail to find out about the labor intensive 

methods. 57 

Fourth, not all MNCs adapt their technologies. There are plenty 
of "engineering men" in MNCs, and, if permitted by non-competitive 
markets, they too will mechanize beyond socially optimal levels. 

Fifth, inappropriate government policies, beyond the labor and 

capital pricing policies and the failure to encourage competition 

mentioned above, are another contributing cause. Badly conceived 

public projects, like the petrochemical complex cited by Morawetz 

(197*0, are a bad use of resources and surely do not provide a good 

example to the private sector. The mystique of high productivity 

and modernity pervades the public sector as much as it does the 

private sector. Other poor policies include a frequent negative 

attitude toward the import of used machinery and used vehicles, 

■z a 
sometimes taking the form of outright bans. This is based on the 

belief that used machines are inferior and private entrepreneurs are 

mistaken in their purchases or that used machinery may be an easier 

vehicle for smuggling (through over-invoicing to smuggle funds out of 

the country or under- invoicing to reduce tariff duties, since the 

customs officials may be less familiar with the true value of the 

machinery). As argued above, such policies are sacrificing potential 

major improvements in labor-capital ratios. And the unwillingness 

to tax or otherwise discourage the consumption of capital-intensive 


= .-.= = = rf rs.-.v ::ve:vr::= :: e:.::ur:-ce 
dcvulopwont/ export i&e«rXets lor ■Bnufactared goods further push their 

cconor . - ret hod a 

:- Ehcrt LIC ::v = : ::: = s c = - ~z = Ic.-.r w=y ir. expl21.-i.-9 

the ::;:::;:::;:= f = c.:r p::r:r:::.-.s zzsa rv e z . 


V. The Evidence on Research and Development in LDCs 

Though plenty of opportunities for more appropriate factor 
proportions exint in LDC, the range of choice is far from complete, 
and in many instances there is a serious need to develop new processes 
and products for LDCs that will be more labor intensive and, of 

course, that will increase the overall productivity of all factors 

generally. This is technological progress, with research and 

development as the main generating agent. Unfortunately, technological 

progress and R&D are only imperfectly understood in the developed 

countries, and the data is still poor and spotty. There have been 

recent surveys by Kennedy and Thirwell (1972) and Kamien and Schwartz 

(1975). Much less is known about this area in .LDCs . 

First, a few clarifying remarks. Improved products and processes 

are the desired end result. Unfortunately, it is frequently difficult 

to quantify these measures properly at the micro level for testing 

hypotheses. Sometimes, patents are used as a proxy for the 

desired measures, or lists of inventions are used. More frequently, 

P6© personnel are used instead. But it must be remembered that these 

are i nputs into the technological progress process, whereas we are 

By measuring 
really interested in the output of the process../ and testing 

hypotheses on inputs, we must be assuming a 

fairly fixed relationship between inputs and outputs. Though 

there is evidence .of a positive relationship between 

these inputs and outputs in the U.S., evidence on whether this is 

linear or not and what other factors influence it is nonexistent. 

There are two major hypotheses concerning technological progress 

and R&D. One is the Schumpeterian hypothesis that large absolute 

size of firm and market power are necessary to generate RS£>. The 

74-665 O - 76 - 11 


former is necessary . : of scale in the R&D pi 

itself (e.g., a laboratory or workshop a minimum efficient 

size): the latter be;; et imperfections are necessary to 

generate the funds for investing in R^D and absorbing the risks of 

R&D and to overcome the probier ;f competition stealing and c::. U 7 

new ideas and thus making investment in them unprofitable in the 

first place. A contrary set of hypotheses argues that invention and 

innovation is still a creative process best suited to individue I ;r 

small group situations and that the best spur to invention and 

innovation is at least a moderately competitive market ir. .-.;- : . _-r 

do so instead, 
fear that if they do not innovate some other firm wilV- to the i-rs-. 

firm's detriment. 

There have been extensive testing of these hypotheses. lire ::i 
-.0 matter in generating more R&D or patents as a percentage of 
sales, but only up to a point. This point seems to vary by industry 
The largest firms in these industries rarely do proportionally the 

3ut there is the problem of under -reporting by small finr 
(and probably over-reporting by large firms, since R&D has become a 
prestige area), and Jewkes et el (19c9) offer plenty of stories of 
major inventions that have been developed by individuals or small 
groups. The case for market power is much weaker; some studies :'.-.: 
that it matters, others that it does not. 

Let us now turn our attention to R&D in the LDCs . Unf ortune t e ._ 
so much less is known that generally writers on the subject are cont 
:i they can just quantify R&D expenditures 7 these have been only a 
very small handful of empirical tests of hypotheses."" The Sussex 
Group L97C has estimated that LDCs do only 2°/o of all of 0M 
conducted in the non-Communist world. Frankena (197-1, p. 2 Z I 


estimates that Indian manufacturing firms spend only 0.1-0.2°/o of 
sales on R&D; the ILO (1972b, p. 1^8) report on Kenya gives a similar 
figure for Kenyan r.anuf 3cturing . Herrera (1972) estimates that 
Latin America spends only 0.?°/o of GNP on R&D.. By contrast in the 
U.S., 3°/° °f GNP is spent on R&D, and manufacturing industries on 
average spend 2° o of sales from their own finances on R&D (Scherer, 

Katz (1973), in one of the few quantitative studies of 
LDC R&D, found that the R&D expenditures as a percentage of sales 
of Argentine firms in nine industries were only a fifth of the 
relative amounts spent by domestic U.S. firms in the same industries. 

The reasons for the low levels of spending are many. low levels 
of income; shortages of trained personnel; the ?mall sizes of firms 
in LDCs (Katz, 1973); the ready availability of developed country 
technology and the low risks involved in transferring it intact 
rather than trying to adapt it the absence of competitive pressures 
to innovate (Frankena, 197 1 *; Baranson, 19 7 M; and the practice of 
MNCs, if they do any R&D relevant to LDCs, mostly to do it in their 
home countries." 

As a consequence of the lov levels of R&D, many argue (Stewart, 
197 1 * "treeten, 1972c: Vaitsos, 197*5), labor intensive 
processes are not developed for LDCs, and new products that would 

be more labor intensive and would be more aimed at the mass markets 


of low income consumers art not developed. Further, there is 

probably a close connection between process adaptation and product 

adaptation. In many cases adaptation of the processes requires 
product adaptation, to make fine tolerances less critical and 
frequently to lower the general quality of the product. The MNCs 
come in for their share of criticism here, since their reputations 
are frequently based on the quality of their products and they are 



reluctant to tamper with that image . 

Still, it is instructive to remember that some invention, 
innovation, and adaptation does occur in LDCs . The anecdotes in 
lection III were all largely instances of firms innovating: taking 
developed country machinery or processes and altering them to suit 
the LDC conditions. Three stories of individual innovations in 
LDCs--Sansom (I969) on a lift pump in Vietnam, Domroen (1975) on a 
bamboo tube well in India, and James (1973) on paper manufacture 
in Mexico--would certainly fit the patterns described in Jewkes 
et al (1969), Strassmann (1967; 1968, pp. 172-173, ch. 7) provides 
examples of product and processes developed in Mexico. Khan (197*0 
and Duff and Khan (197*0 describe innovations in the design and 
manufacture of small-scale agricultural implements at the Internationa 
Rice Research Institute. Even a few of the MNCs have research 
operations in LDCs and do adapt items like cars and tires to local 
conditions and currently seem to be interested in providing new high 
nutrition food products for LDCs (USAID, 1972). 

But, clearly the flow of new products and processes that are 
appropriate for LDCs is not fast enough. Efforts should be made to 
encourage more R&D and, of course, to make sure that it is aimed 
at the right targets. Here, the question of incentives arises again. 
First, Strassmann ( 1970; 1971) and Greene and Strassmann (1971) note 
that the innovations in Latin American construction methods tended 
to be labor saving, and they relate this to rising real wages for 
construction workers. They also note that the labor-saving 
innovations tend to be adopted more slowly where real wages are 
lower. Second, Pack (1972; 1976) argues that labor-intensive methods 
may encourage more rapid technological progress, since new processes 
do not have to be embedded in expensive capital goods. Third, 


Cooper (197M notes the connection between the research and consult- 
ing of the Engineering Faculty at the University of Nairobi 
and their teaching. The government sector in Kenya wants capital- 
intensive "modern" methods on its projects; it wants to hire 
engineering graduates and faculty consultants who know these methods. 
Therefore the faculty must teach these methods and do most of their 
research on projects relating to them. Fourth, research on 
appropriate products will not be encouraged if inappropriate factor 
prices or exchange rates make domestic production unprofitable. One 
report (USAID, 1972) gives the example of a Pakistani research 
institute developing a new pesticide, but the report's author is 
then puzzled as to why the institute could get no entrepreneur 
interested in producing it. Small wonder, when Pakistan had a badly 
over-valued exchange rate and pesticides could come in duty free. 
Fifth, Frankena (197*0 notes that India's foreign exchange control 
regime meant that there was less competitive pressure to design new 
products and processes; Baranson (I97U) has similarly argued that 
Brazilian firms do little R^ : D because of the absence of competitive 
pressures. Frankena also points out that the control regime 
encouraged dependence on foreign technology, since a domestic firm 
with a foreign collaborator to provide foreign exchange could more 
easily get government approval for new projects. Finally, prestige 
factors also play a part in assessing what kind of R5<D is worth 
encouraging. P^atz (1973), for example, describes the research 
potential of firms in Argentina's electrical goods industry and 
writes in disparaging terms of the small firms that make simple 
transistor radios for the domestic market. Katz's views would probably 
be shared by government officials deciding on the allocation of 
research funds. Yet these firms may have made the best 


adaptations of product and process for the bulk of the market. 

Research institutes in LDCs are frequently r.een as a way of 
encouraging appropriate R&D and of transmitting new and existing 
knowledge of techniques to LDC firms, especially small firms. There 
are plenty of examples of successful research institutes (the Korean 
Institute of Science and Technology, IMIT, IRRI, the wheat research 
institute in Mexico, the Madras Leather Institute) , but 

also of institutes which are not (Strassmann, 1967; 1968, ch. 7; 
Stewart, 197^ r USAID, 1972; Khan, 197^; Duff and Khan, 197M . The 
leadership of these institutes appears to be critical to their succes 
The decision by an institute to solicit contracts to solve problems 
and to do applied research is also important. J The contrary decisio 
to do basic research and try for published papers in developed 
country learned journals will mean another research institute spinnin 
its wheels. Finally, there are problems of confidentiality of 
information, since many firms fear that publicly sponsored research 
institutes will reveal confidential information to the tax authoritie 
or politicians (Strassmann, 1968, pp. U3-U8). 

Pressuring the MNCs to do more R&D in the LDCs is another 
approach. Countries might make this a condition of entry by the MNC. 
Again, appropriate factor prices and product taxation would certainly 
encourage this process, as would more competition in product markets. 
Indeed, much of the problem that LDCs face in paying too much for 
the transfer of technology (through excessive royalties, improper 
transfer prices on inputs, etc.) would disappear with a combination 
of tougher .bargaining and a pro-competitive (via import competition) 
policy that would reduce the potential profits that the MNCs could 
siphon away. The picture (Barnett and Mueller, 1975; Streeten, 1972b 
1973) that is frequently described of helpless LDCs at the mercy of 


a handful of monopolistic MNCs is largely false. Alternative 
suppliers of technology to achieve similar ends almost always exist, 

and LDC policy makers can and should be able to take advantage of 

this. Even in the world automobile industry, which exhibits tight 

oligopoly in domestic production in every developed country, there 

are more than a dozen producers capable of LDC production. 

Finally, the question of patents in LDCs combines the problem of 

incentives and MNCs. Patents provide a property right in an idea 

and thereby encourage the investment of resources I R&D) in the 

production of new ideas that would otherwise be copied at low or 

zero cost. But they do convey a monopoly on the idea in the process. 

In LDCs the vast majority of patents are granted to foreigners 

(Vaitsos, 1972; O'Brien, 197*0, and only a tiny fraction of them are 

in the LDC. 
ever used/ Essentially, the patents largely protect foreign 

inventions from being copied domestically rather than encourage 
domestic invention. But the patent system does encourage some MNCs 
to produce in LDCs, which they otherwise would not do if they could 
not protect their products and processes (Penrose, 197 1 *). The 
publication of the patent in the developed country reveals the basic 
invention (Grundmann). But there is usually non-patentable 
proprietary confidential information that is necessary to make the 
invention work. This is what the MNC is frequently bringing to the 
LDC, and the protection of the patent also protests this proprietary 
knowledge. The critical question is whether a broad patent system 
that possibly encourages some domestic invention and some MNC invest- 
ment but that also prevents domestic firms from using foreign owned 
patented inventions that the foreigners are not using is worthwhile. 
There is simply no evidence to support strongly any conclusions. 


It is probably the case that a store selective system--e.g. , one 
that voided foreign held patents after a period of domestic non-use 
--would be more worthwhile. 

For R&D in LDCs, then, though the picture is far from bleak, it 
is also far from rosy. Though some R&D is done, more is needed. 
But, again, incentives are important, and policies should be shaped 
carefully. It is too easy to throw away large sums of money on ill- 
conceived R&D. 


VI. Conclusions 

The evidence summarized in this paper does suggest strongly 
that greater labor intensity in LDC manufacturing is feasible and 
would be efficient. The possibilities are not unlimited; there is 
still plenty of room for the discovery of intermediate technologies 
through well-directed R&D. But a view that LDCs are currently 
condemned to high capital-labor ratios, because there are no 
efficient alternatives, simply is not consistent with the evidence. 

The evidence also suggest that incentives matter. Appropriate 
factor prices are an important spur to the discovery and profitable 
use of appropriate factor proportions and appropriate products. 
Effective competition in product markets can also provide an 
important push in the right direction, by leaving less scope for 
engineering instincts to dominate efficient factor use. 

Large gaps, however, still remain in our knowledge of appropriate 
factor use. The micro studies of efficient alternative factor 
proportions have only been completed for a small handful of 
industries. It would be reassuring to have many more studies showing 
that alternatives exist. Also, these kinds of studies could profit- 
ably be focused on the auxiliary handling, packaging, transporting, 

and storage processes / figure prominently in the anecdotal examples 

of substitutability ; again, it would be reassuring to have more 
precise estimates here. Further, we still do not understand very 
well the connection between scale effects and mechanization, nor the 
extent to which it is a genuine problem. And the connection between 
quality standards and mechanization and the extent to which 
mechanization serves as a substitute for skilled processing labor 


and/or management supervisory skills are still largely unknown; 

most evidence here is still qualitative rather than quantitative. 

(But, it cannot be emphasized too frequently/ better utilization of 

existing capacity-multiple shift work in particular—can greatly 

increase/ overall labor-capital ratios of apparently capital intensive 

processes, and/export markets can supplement small internal markets 

so as to achieve possible scale economies.) Finally, the connection 

between good management and the ability to recognize and utilize 

the opportunities for labor-capital substitution needs much greater 


The conclusions of this paper point directly to a number of 

policy implications. First, the establishment of proper factor pricei 

has been 
is terrifically important. This / a familiar refrain from economist! 

over the past ten years, but it can still bear repeating. The 

subsidies to capital use must be ended; an important part of this 

would be the replacement of exchange control and over-valued exchange 

rates with a realistic exchange rate. If wages in the urban modern 

sector cannot be decreased, at least their rates of increase must 

be substantially moderated in many countries. This is difficult to 

advocate, since the wages are lew by developed country standards; 

but they are high by comparison with the incomes of the bulk of 

the remaining population in the LDCs, and the wage increases in the 

urban sector must necessarily reduce the potential for improving the 

incomes of the poorer majority. If these policies of altering 

relative factor prices are combined with pro-competitive policies 

and more effective taxation policies, they need not imply a decrease 

in labor's share of (or claim on) output relative to capital's 

share. Rather, the effect will largely be an increase in the 

government's share (and possibly lower product prices because of the 


pro-competitive policies); these extra government revenues can 

(hopefully) be spent on welfare increasing activities. 

With respect to the small firm /large firm problem, efforts to 

provide special facilities or subsidies to small firms are probably 

unwise. It is easy to waste funds on unproductive projects in this 

area, and it would be a serious mistake to compound the current 

incentive errors by subsidizing capital for small firms. Rather, 

it would probably be quite adequate simply to give small firms 

unhindered access to resources; i.e., to stop current discrimination 

against small firms and to let the processes of competition sort 

out the efficient and inefficient sizes. The current exchange 

control and capital funds control regimes usually do quite the 

opposite (Uhite, 197 1 *, chs . 2, 7). The establishment of an 

industrial extension service that would provide information on 

techniques and help solve problems for small businesses would 

probably be the best action that an LDC government could take (Hammond, 

•*197M. But, like research institutes, effective extension services 

are easy to describe in principle and difficult to make work in 


The policy toward used machinery should also be relatively neutral. 
Neither a strongly pro- nor anti-used nachinery policy seems warranted. 
Rather, reliance on the judgments of entrepreneurs --provided that 
the appropriate factor price and pro-competition policies are pursued 
--is warranted. Again, an information service to help on those 
judgments would be worthwhile. 

The appropriate factor price and pro-competition policies, 
backed by some tougher bargaining by LDCs, would limit many of the 
possible abuses of MNCs.^ Taxation policies on inappropriate products 
and an outward looking orientation that stressed labor intensive 


exports would also help. And pressuring the MNCs to do more R&D 
in the LDCs is probably worthwhile. 

Research institutes and information services, both national and 
international, are probably fruitful ways of encouraging more 
appropriate R&D by and for LDCs. But, again, it is easier to 
describe the good research institute than to operate it. 

If the connection between good management and appropriate factor 
proportions is as crucial as much of the evidence suggests (with 
good management meaning that entrepreneurs can recognize and utilize 
the opportunities for appropriate factor proportions and also 
meaning that supervisory skills may be able to substitute for 
mechanization in the maintenance of quality standards), then 
appropriate management training institutes may be as important (or 
more so) as appropriate R&D institutes for discovering and 
applying efficient labor intensive methods. 

Finally, a few words of caution? Appropriate technology is 
currently a fashionable topic of research and interest. There is, 
though, a serious risk. Appropriate technology is sometimes touted 
as a quick and easy way of raising LDC incomes to developed country 
levels. Five or ten years from now, after some (but not all) measures 
to encourage appropriate technology have been taken, many current 
enthusiasts will look around and notice that most of the people in 
LDCs are still very poor by developed country standards. They may 
then decide that appropriate technology was a fraud and will search 
for some other quick and easy solution. This would be unfortunate. 
Appropriate technology does not offer a simple solution to LDC 
problems; it cannot. There are no quick and easy solutions, short of 
a radical change in the relative supply-demand conditions for roost 


natural resources, comparable to that which has occurred in oil. 
But appropriate: technology can mean an improvement in the allocation 
of resources in LDCs, perhaps a slightly higher growth rate, a 
better distribution of capital resources across the economy and 
probably a slightly more equitable internal distribution of income, 
and more and better employment opportunities. The game should not 
be oversold, but it is definitely worth the candle. 


*This paper was written for USA ID under contract No. AID/CM/ta-ll+7-526 

1. This corresponds to the economist's notion of a set of production 
isoquants . 

2. Some authors (e.g., Marsden [1971])have also included suitability 
for small scale production, compatability with LDC cultures, 

and other desirable properties of technologies as part of 
"appropriate." See Vestphal (197^) for a critique of these 
wider definitions. 

3. It should be stressed that the model which follows is an ideal, 
and no country, developed or less developed, functions in the 
perfect manner described. 

h. Only if technological change were to alter the underlying 

technology sufficiently so as to increase the demand for labor 
would employment be able to keep pace with output. 

5. This would be due, in about equal thirds, to physical capital 
deepening, human capital deepening, and pure technological 

6. This has come to be called the Harris-Todaro model. Gee 

Todaro (I969), Harris and Todaro (1970), and Todaro (1971). See 
also Berry (197*0, Fields (1975), and Godfrey (1973). 

7. This hypothesis is given powerful support by Turner and Jackson 

the change of 
( 1970) who find that/rate of/ LDC urban unemployment is negatively 

related to LDC growth rates and positively related to the 
change in the ratio of urban incomes to econoroy-rwide incomes . 

0. E.g., through a wage subsidy. 

9. Stewart (I97U, p. S7) provides a calculation in a similar spirit. 


10. The Pearson report ( 1970, p. 30) estimated average LDC saving 
at I5.0°/o and investment at l7.8°/o of GNP for I96O-I967. 

11. In 1971 the ratio of f i .e^ capital plus inventories to employees 
came to /20.000 (U. ". Bureau of the Census, 1973). This ignores 
working capital. It also underestimates replacement costs, 
since it is based on lower historical costs. 

12. This 33r,ume3 that the workers in the high productivity jobs will 
be able to capture some of that productivity in high wages. 

13. 'ee, for example, the ILO report cited in Kilby (I962) and see 
Adusei-Poku and Fiejka ( 1972, p. 306). 

1U. -ee Liters and Cabero (1972) for Chile, ILO (1972b, pp. kk6-kkj) 
for Kenya, and ^.trassmann ( I968, pp. 3I6-3I7) for iiexico. 
Occasionally, authors have been able to find cases in which LDC 
capital-labor ratios are hic;her than developed country figures. 
':ee Khan (1970a, 1970b), Bautista (1966), and Boon ( I969, P- 213). 

15. For more discussion of capacity utilization rates and their 
causes, see Winston (1971; 197 1 *), Little, et al (1970, pp. 93-99), 
Keraal and Talat (197*0, and Steel (1972). 

16. For the original statement and estimation of the CEv function, 
see Arrow, et al (I96I). 

17. This is the first order condition with respect to labor for 
profit maximization or cost minimization. 

18. There is the problem of the possibility of selectivity of 
reporting: Oily the favorable results may get published in journals 

19. There are also econometric problems of multicollinearity and 
simultaneous equations bias. 

20. But Harris and Todaro (1969) and Tidrick (1970), for example, 
explicitly try to test for this and reject it as an explanation. 


21. Some studies (e.g., Hewavithama [1970]) do present alternatives 
but then simply look at comparisons of unit costs. If these 
costs incorporate inappropriate factor prices, the conclusions 
from the unit costs may not be trustworthy. But one can usually 
recreate the original factor proportions so as to examine the 
technologically efficient alternatives. 

22. The abstracts in OECD ( 197*+a » 1975) also appear to include more 
recent studies. 

2J. The costs of containers and pipes tend to increase with surface 
area, which rises more slowly as dimensions increase than the 
volume enclosed. See Silbertson (1972) and Scherer (1970, ch. h) , 

2k. This assumes that, despite the dilemma, it is still within the 
LDC's comparative advantage to produce the item rather than 
import it. 

25. And, of course, the small producer who expects volume to grow 
has a yet crueler dilemma. 

26. Diaz-Altjandro ( 1965 ) also tried to measure the same effect, but 
his study focuses only on output per worker and thus ignores the 
effects of varying capital intensities. 

27. The literature on small firms has grown quite extensive. See 
Staley and Morse (I965), Dhar and Lydall (I96I), Bhalla (197*0, 
IBRD (1973), Paine (1971), Stepanek (i960), Fisher (I968), 
Shinohasa (1968), Oshima (1971), Watanabe ( 197*0, and Vepa 
(1967; 1971). 

28. Or one could argue that they sell different kinds of goods or 
different qualities, in which case the comparisons become 
largely irrelevant. 


29. For some further theoretical discussions, nee Sen (1962), 
Schwartz (1973), and Smith (197M. 

30. But if the productivity of the used machine falls so low that 
its price is simply its scrap value, then it may or may not be 

a good buy for the LDC. 

31. See White (1971, ch. 13 ) on this point for U.S. cars; see 
Alth (1968) for trucks. 

32. Also see Cline (1972) and Tokman (I97U, 1975). 

33. The price ceilings, though, may have had the unintended effect 
of discouraging the production of white sugar. 

3U. VJinston ( 1970) has also pointed out that exchange control and 
overvalued exchange rates make smuggling a highly profitable 
activity and that smuggling via over-invoicing on hard to value 
(by customs officials) capital goods provides yet another 
incentive for entrepreneurs to favor capital intensive processes. 

35. See also Cordova (1972). 

36. See, for example, Hicks and McNicholl (1971, p. 91) for the 
Philippines . 

37. See Cooper et al ( 1975 ) for a description of a can manufacturer 
who simply failed to find out about the availability of a lower 
cost labor intensive method of production. 

38. See Rethwisch (197M. 

39. Todaro (I97O), though, has argued that reliance on used machinery 
will still tie LDCs to a pattern of increasing capital-labor 
ratios over time, since this has been the pattern in the developed 
countries from which the used machinery comes. 

UO. See Marsden (1971) and Schumacher ( 1971a; 1971b; 1972; 1973). 

74-665 O - 76 - 12 


kl. Alsc, even patents rray be a poor rreasure of the true output we 
wish, since there are clearly some patents which are more 
worthwhile than others. 

k? . See Kamien and Schwartz (1975) for a summary of this evidence. 

U3. For general discussions, see Sussex Group (I97O); Stewart (197*0; 
Eckaus (1966); Strassmann (1968, ch. 7); Herrera (1972); Nelson 
(197*0; Solo (1966); Helleiner (1975a); and Bass (1973). 

U5. As Khan (197*0 points out, since LDC industrial firms do not 
undertake much applied R&D, basic R&D by research institutes 
would be wasted. 

U6. Leff (1968, ch. I4. ) describes the way in which the Brazilian 
engineering industry was successful in obtaining foreign 
technology at reasonable costs; Streeten (1973) and Helleiner 
(1975b) also recognize that LDCs can be more effective bargainers. 

U7. This might have one unfortunate effect, if done in isolation. 
It would provide easier access to foreign capital intensive 
technology by local entrepreneurs and might bring out further 
the "engineering men" among them. 

U8. See Dhar and Lydall (I96I) and Watanabe (197*0. 

U9. See Di Tullio ( I97U ) . 

50. For example, ending the tax concessions that make capital 

cheaper for MNCs would improve factor utilization/ increase LDC 

taxes at the expense of profits. The questionarie data (if it 

is to be believed) indicates strongly that MNC location decisions 

are not affected by tax concessions (Hughes, 1969; Reuber, 1973, 

p. 128; Streeten, 1972b, p. 23O; Schreiber, 1970, p. 75). 

51. And even then, LDCs would still face serious political, social, 
cultural, and income distribution problems. It is not clear that 
Saudia Arabia is everyone's ideal of what an LDC that becomes 
rich should look like. 



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Policies To Encourage the Use of Intermediate 

(By Howard Pack, Department of Economics, Swarthmore College, April 1976) 

This paper has several purposes; to indicate the 
policies which an LDC government may choose to alter the 
relative costs of using the various factors of production; 
to indicate how much is known empirically about the efficacy 
of such changes; and finally, to consider how a program to 
aid LDC governments undertake such changes can best be 
pursued given the absence of large leverage in the form of 
any concessionary aid. 

The focus on policies which may affect factor prices 
assumes that if such prices were changed, methods of produc- 
tion could be introduced which are more labor intensive than 
those currently in use and which will be more profitable at 
the new factor prices than techniques currently in use. 
An alternate possibility is that a country is currently 
using quite labor intensive techniques . and the policies 
considered here are designed to maintain the desirable 
pattern of factor use. Though it is not our purpose to 
survey the literature on choice of technique, a summary of 
some of the conclusions we have reached on the basis of 

"This paper has been prepared for the AID Committee on Intermediate Technology. 




recent literature is germane at this point 

(1) In a larqe number of industrial activities 
a product is producible with a considerable 
range of alternate ratios of capital to labor. 
Much of the potential substitution of labor 
for capital stems from use of labor intensive 
methods in "peripheral" production activities; 
labor, with little if any capital, can be used 
to transport material within the factory, to 
pack cartons, and store the final product. 
The evidence for those statements is drawn 
from observation of both D.C. and LDC factory 
operations and engineering specifications. 

Three recent surveys of the rapidly growing literature 
on micro-substitution possibilities provide a large number 
of examples of such findings for specific industrial products 
as well as in construction activities. These are: S.N.Acharya, 
"Fiscal/Financial Intervention, Factor Prices and Factor Pro- 
portions j A Review of Issues, "Staff Working Paper 183, IBRD, 
1974; Da\^Ld Morawetz, "Employment Implications of Industriali- 
zation in!- Developing Countries; a Survey" The Economic Journal , 
Sept., 1974. Frances Stewart, "Technology and Employment in 
LDCs" in Edgar 0. Edwards, (ed. ) Emplo ym ent in Developing 
Nations , (New York, Columbia University Press, 1974). A recent 
ILO volume, A. Bhalla, ed. Technology and E m ployment in Industry 
(Geneva, ILO, 1975, 1975) provides yet more evidence, as do a 
number of the studies being completed by the Technology and 
Employment Branch of the World Empl oyment Program. A complete 
list of these studies is provided in I.L.O. Wor ld Employment 
Progr amme Research in Ret r copes- f and Prosrv-ct (Geneva , I , L. 0. , 
1976) pp. 21-31 and Appendix I. Acharya's review provides an 
insightful analysis of the difficulties with industry-wide cross 
section and time series estimates of the elasticity of substi- 
tution and thus provides the rationale for emphasis on evidence 
from individual process level Micro-analyses. 


(2) Evidence is also accumulating that the core 
production process itself, whether cooking 

of food or production of yarn, offers efficient 
possibilities for using less expensive equipment 
and more labor per unit of output. Adaptation 
of existing equipment, for example, changing 
the "normal" speed of operation offers still 
further opportunities to save capital and in- 
crease the relative use of labor. Finally, 
extensive under-utilization of industrial capacity 
provides considerable scope for increasing the 
effective labor /capital ratio. 

(3) There are some industries that probably offer 
limited possibilities for altering the capital/labor 
ratio compared with that prevalent in advanced 
economies. These are typically activities 

in which most LDCs have iio comparative ad- 
vantage and where the basic problem is to fore- 
stall their introduction (typically behind 
tariff walls) rather than to suggest methods 
of changing production in a more labor inten- 
sive direction. 


A. The Role of Factor Prices 

1. Competitive Environment. 

The ratio of labor to capital costs is usually assumed 
to play a decisive role in determining the ratio of capital 
to labor used in the production process. Before considering 
these costs explicitly, some caveats are in order about the 
simple relationship. The importance of relative factor prices 
flows from the assumption of a competitive milieu. There 
is abundant anecdotal and some numerical evidence which 
suggests that factor prices may play a limited role in non- 
competitive environments. A firm currently realizing a 30 
percent rate of return on equity capital, though using an in- 
appropriate!- high ratio of capital to labor, may have little 
incentive to search for more appropriate methods which may 
raise its return to 35 percent. The losses from foregone 
leisure and the difficulties often alleged to result from 
management of a larger labor force make such behavior perfect- 
ly plausible. If factor prices are to exert pressure toward 
adopting socially appropriate techniques, some competitive 
forces must be present. Given the typical small markets of 
many LDCs, such pressures are best engendered by international 
competition rather than the proliferation of large numbers of 

James Pickett, D.J.C. Forsyth, and N.S.tocBain, "The 
Choice of Technology, Economic Efficiency, and Employment in 
Developing Countries," in Edgar O. Edwards (ed), Employment 
i n Developing Countries , (New York, Columbia University 
Press, 1974). 


small domestic companies, none of which are likely to 
reach economically efficient sizes. In the presence of 
high rates of effective protection of value added, changes 
in relative factor prices may have some beneficial effects, 
but they are likely to be highly attentuated. Thus, an 
integral component of any determined effort to achieve 
more desirable factor proportions must be some increase 
in competitiveness in the product markets in which indus- 
trial firms participate. 

2. Factor Price Distortions 

An LDC company considering beginning or expanding its 
operations has a variety of methods of production which it 
may adopt, the actual decision depending on the cost levels 
of the factors of production; labor, capital and raw materials. 
It has become conventional to assert that labor costs are 
"too" high, capital costs too low, and raw materials prices 
distorted, though not in one direction. What is the precise 
meaning of these statements? Let us briefly consider each 
of the first two factor costs. 

a . Wages 

The hiring of a worker entails the payment of a cash 
wage, and one or more of the following i payments in kind 
(housing), non-cash fringe benefits (social security), and 
in some countries such supplements as "thirteenth month" 
salary. The cost of hiring a worker is "too" high if the 


value of the cash wage and other benefits exceeds the in- 
come which the worker could command elsewhere, given his 
abilities, both inherited and obtained by education and 
on-the-job experience. It has long been noted that the 
typical employee in a modern enterprise, be it a factory, 
bank office, or government agency, earns considerably more 
than a worker in small scale artisan shops or in self-employ- 
ment such as barbering. Modern employment also provides 
incomes considerably in excess of that of agricultural 
workers and small scale peasant farmers. It is generally 
believed that the observed income differentials do not re- 
present a reward for greater productive ability, but are 
artificially high and institutionally supported, reflecting 
government minimum wage legislation, union bargaining success, 
' and a guilty aversion to paying lower, more appropriate wages 
which typify other activities. Nevertheless, there have 
been no studies confirming the hypothesis that such high 
wage incomes are not the result of greater work related 
skills; though considerable anecdotal evidence exists which 
suggests that recipients of high wages are frequently un- 
skilled when initially hired, their productivity may well 
increase as a result of learning on the job. Even if some 
of the observed high wage structure is related to productivity, 

I it is likely that union pressure and government minimum wage 
legislation add to any productivity based differentials. 


The statement that wages are too high thus refers to 
the norm of alternate income possibilities for a similarly- 
skilled worker, either in the urban craft sector or in a 
variety of rural activities. It does not imply that these 
wages are excessive in comparison with those in developed 
countries or that such workers are able to afford a luxurious 
living standard. High wages accruing to the small group 
lucky enough to obtain modern sector jobs do imply that 
production will be undertaken with fewer workers than if 
wages were lower, thus condemning those not fortunate enough 
to obtain such jobs to a lower standard of living than would 
have been possible with a generally lower wage structure. 
Instead of a million workers employed in the modern sector, 
each receiving a wage of $500 per annum, 200,000 workers 
may receive a wage of $900, with the remaining workers 
earning $150 per annum. 

b. The Cost of Plant and Eguipment 
The cost of utilizing plant and equipment reflects 
the purchase price of a factory building or machine, and 
the interest costs incurred in financing it. More precisely, 
the cost of using plant or equipment is best viewed in terms 
of the annual expenditure (depreciation of the initial ac- 
quisition cost and a yearly financing charge incurred as the 


result of a decision to purchase the capital item). The 
purchase cost of equipment is too low in most LDCs in 
the sense that the net effect of government foreign trade 
policies is typically to artificially lower the amount of 
domestic currency which must be given up to pay for an 
imported machine. Most LDCs have engaged in a sustained 
import substitution program, one of whose characteristics 
is to maintain an overvalued exchange rate i.e., the. domes- 
tic currency buys too much foreign currency. For many 
industrial products this artificial cheapening of foreign 
goods is offset by a relatively high, often prohibitive 
tariff imposed on imported goods which compete with domes- 
tically produced go.xis. However, no tariff is imposed on 
imported equipment, ostensibly to encourage domestic in- 
vestment. Thus, LDC firms purchasing new equipment pay 
a lower price than would exist if governments did not 
discriminate between different types of imported goods. A 
low purchase price of course is reflected in low annual 
depreciation charges, one of the two major components of 
the annual cost of using equipment. 

*For a precise measure of the cost of using capital 
see Dale Jorgenson, "Capital Theory and Investment Behavior, 
"American Economic Review, May, 1963. 


As mentioned earlier, the second major cost is the 
financing charge. The interest rate paid by larger compa- 
nies in the urban sector is too low as a result of govern- 
mentally imposed limitations en the rate of interest. At 
the existing, low ceiling levels cf rates, the total demand 
for loanable funds exceeds the supply, and the existing 
supply is rationed among competing companies, none of whom 
are charged more than the legal maximum. Companies which 
are unsuccessful in this competition are forced to compete 
in a gray or black market in which the rates often are 
three- or fourfold the official one. They are neverthe- 
less guite willing to borrow at these rates, suggesting 
profitability at least equal to this higher rate. However, 
the financing charge for new equipment or building will 
clearly be greater for those (usually small) firms which 
are forced to compete for funds. Viewed alternately, large 
firms ; receiving as it were, subsidized loans, pay too low an 
annual financing charge for the capital which they use. 

It has been argued by Ridker that a firm receiving loans 
at subsidized rates may then relend these competitively, if 
its internal rate of return is less than the black market rate. 
If this is the case with respect to loans, allocations of 
import licenses etc., the validity of the view that capital 
is underpriced is open to doubt. The implicit position of 
most analysts has been that such resale is a quantitatively 
unimportant phenomenom. Clearly more work is required given 
the implications of an active resale market. See R.Ridker, 
"Employment and Unemployment, in Near East and South Asian 
Countries, a Review of Evidence and Issues," in Ronald G. 
Ridker and Harold Lubell , , Employment and Unemployment Problems 
of the Near East and So uth A sia ( . v ew Dehli , vikas Publications 


Apart from measures which lead to too low a purchase 
price and interest rate for many investors, numerous tax 
regulations further reduce the annual charge for using 
equipment. For example, investment credits and accele- 
rated depreciation are likely to have adverse effects on 
the choice of production methods, particularly in view of 
the already high rates of return being earned by investors, 
who hardly require additional incentives. 

The net effect of the existing set of distortions in 
wages and the cost of capital has presumably been to bias 
the choice of individual firms towards unnecessarily capital 
intensive production methods. There is little direct evi- 
dence on the excessive use of very modern equipment; rather, 
much of the literature depends on inferences drawn from the 
large observed discrepancy between the growth of output and 
employment in the industrial sector. It is possible, of 
course, that such differences arise from gains in produc- 
tivity either reflecting improving workers' skill or better 
management. Yet given the continuing large flow of new 

For the effect of such tax practices on the cost of using 
capital see Jorgenson, ojd. cit . A detailed list of the existing 
tax legislation in a large number of Latin American countries 
is provided in "The Role of Fiscal Incentives for Employment 
Promotion in the Manufacturing Industries in Central America 
and Selected Countries in the Carribbean" in Fiscal Measures 
for Employment in Developing Countries (Geneva, ILO, 1972) 
pp. 183-212. 


equipment from DCs to LDCs, some of this must be inappro- 
priate, given DC wage levels for which the equipment is 
presumably appropriate, and the fact that equipment is not 
typically altered. To remove the incentives towards adop- 
tion of socially inappropriate equipment, the imperfections 
in factor markets must be reduced. 

3. Types of Factor Price Policies Required. 

The following sets of actions are open to LDC govern- 
ments t 

(1) Removal of the minimum wage, particularly for 
new employees, or reducing it to the levels pre- 
vailing in the craft sector. 

(2) Undertaking policies to shift the supply curve 
of wage goods in order to reduce their price. 

(3) Limiting the growth of wages paid by the govern- 
ment sector which often serve as a guidepost for 
private sector wages. 

(4) Limiting the fringe benefits such as social 
security currently in force. 

For a detailed analysis of this question and its 

importance in one LDC see, Republic of Kenya, Report of 

the Commission of Inquiry . (Fublic Service Structure and 

Remuneration Commission) (Nairobi, Government Printer, 1971) 


(5) Allowing the official exchange rate to 
move towards its equilibrium value, i.e., 
that at which the supply and demand for 
foreign currency will be egual, without the 
imposition of tariffs, administrative limits 
on imports and so on. Alternately, and 
less desirably, the imposition of tariffs 

on imported capital goods could be intro- 
duced to raise their cost in domestic 

(6) Removal of interest rate ceilings. 

(7) Elimination of tax incentives which reduce 
the cost of utilizing capital in production. 

(8) Elimination of the licensing of imported raw 
materials, a practice which has often been 
shown to discriminate against small labor 
intensive enterprises. 

Two extended comments on this group of proposals are 
in order i first, is it politically feasible; second, will 
it work? It would be difficult to construct a set of 
policy proposals which would generate more intense dis- 
agreement among many of the most politically powerful 
groups who perceive the probability of substantial reduc- 
tions in income. Highly paid, often unionized workers 

-665 O - 76 - 14 


concentrated in urban areas would be adversely affected, 
the management of large companies currently enjoying 
subsidized equipment, low interest rates and access to 
raw materials would have to contemplate a reduction in 
windfall profits. Those who would benefit most, workers 
and entrepreneurs in the craft and small scale sectors, 
while surely more numerous, are poorly organized and 
likely to be less politically active. It is easy to 
see why alterations in factor prices, even where the 
potential aggregate benefits are understood by the govern- 
ment, may not be attractive to it. 

A more immediate, technical question is whether factor 
price changes will work. Changes in technique are most 
easily made in new production decisions. Existing 
buildings and equipment most often have limited flexi- 
bility not permitting a decrease in the capital/labor ratio, 
Will firms facing a changed economic environment react in 
the anticipated direction when expanding their capacity, 
assuming that scope exists for employing more labor in- 
tensive techniques? Put another way, what might intervene 
between a change in relative factor prices and a change 
in method of production? 

A good discussion of some of the political issues is 
to be found in Warren F. Ilchman and Norman T. Uphoff, 
"Beyond the Economics of Labor Intensive Development! 
Politics and Administration, Public Policy , Spring, 1974, 


First, as mentioned earlier, unless a reasonably 
competitive environment exists, the rates of return 
available in particular highly protected industries may 
be such that limited effort is forthcoming to adjust 
factor proportions. The small increment to profits re- 
sulting from economizing on the now more costly inputs 
may not be worth the effort, as long as "reasonable" 
profitability can be maintained. Even assuming desire 
to restore or augment profits, a limited amount of 
managerial time may better be spent cajoling a somewhat 
higher nominal protection rate for a firm's output, looser 
quetas on critical inputs, etc., than in adjusting factor 
proportions. The potential for additional profits in 
this direction may simply be perceived as greater and more 
probable than those obtainable by more intensive explora- 
tion of other production methods. Avenues to increased 
profitability other than improved productive efficiency 
must be closed if changes in factor prices are to provide 
the strongest impetus to exploration of alternate techniques 
of production. 

Secondly, it is possible that despite the objective 
existence of more labor intensive production methods, this 
knowledge is not widely diffused among entrepreneurs. 
Knowledge of appropriate techniques requires not only 


familiarity vith production equipment per se, but with 
alternate methods for carrying out a variety of sub- 
sidiary operations such as intraplant movement of 
material, storage and so on. These operations often 
provide a major share of employment where the process 
has not been prematurely mechanized. Moreover, labor 
intensive peripheral activities are likely to be the 
least cost method for most LDC companies unless their 
production volume is atypically large. However, these 
alternatives are not likely to be advocated by the (large) 
company's engineer, the equipment salesman, nor the various 
government agencies. Nevertheless, companies in at least 
some LDCs do utilize appropriate core equipment and peri- 
pheral processes in response to the low wage of labor. 
If there is reason to believe that adaptation to changed 
factor prices is unlikely to be forthcoming due to lacunae 
in existing knowledge or understanding, some government or 
private aid will be needed to supplement the eight policies 
listed above. 

For calculations of such costs for a typical process 
see H. Pack, "The Substitution of Labour for Capital in 
Kenyan Manufacturing, The Economic Journal , March 1976. 

Pack, Ibid . , and G. Ranis, "Industrial Sector Labor 
Absorption", 5conomic Development and Cultural Change , 
April, 1973. - 


B. A Survey of Evidence on the Effects of Changes 
In Factor Prices. 

There have been only a few conscious attempts by 
LDC governments to alter relative factor prices: the 
factor mix effects of these have not been systematically 
analyzed. It could, of course, be argued that the effect 
of changes in relative factor prices is implicit in the 
substantial number of studies which utilize the relation- 
ship between value added per worker and the wage rate to 
infer the ease of substitution between capital and labor. A 
positive estimated relationship is presumptive evidence 
of the responsiveness of factor proportions to the real 
wage. The difficulty here is that wage growth over time 
in an LDC may reflect labor's share of increasing producti- 
vity which is itself attributable to organizational changes 
and learning-by-doing. The growth of wages is thus not exo- 
genous as required for the statistical estimating procedure. 
The relation between the value added per worker and the 
wage may thus provide information about wage bargaining 

rather than the responsiveness of factor proportions to 

exogenous changes in the level of wages. More direct 

For example those cited in the surveys by Acharya and 
Morawetz, op. cit . 

See H. Tack, "Employment and ?roductlvity Growth in Kenyan 
Manufacturing," Yale Economic Growtn Center Discussion 
Paper i9o, especially pp. 27-29. 

evidence n - Jness of facte: :::::::;:-s to 

fee in relative factor price-' is thus desirable fcr 

robust i-.ferer.ces about the potential ef recti veness of 
a cranred ^zzr.z-.c rileu. ""unfortunately, little such 
evidence is available, as the fell ovine survey suggests. 

1. Effects cz Policy Inducer lharres :r. Partcr Prices, 

The classic "stcries"of successful alteraticr. cf 
f actcr trices and resultant grevth 
are South Pores and Taivan, both cf vhich allcved rar>:et 
forces to determine neretofore perred rates cf interest 
in c3e=crci«il and savings bans." In South Pcrea this 
chance occurred m 1955. Taivan relieved a '.rich real 
interest policy throughout the ir-rl's and l?5C's. Table - 

"Analyses cf the rr.a-.res ir policy m South Pcrea are 
01 -.-en it Z. Broun, ?:i'.-.: -.-.-: Pi.-ral Policies in South 
- orea in tne 1 "-: : ' s and lavid : . Sole ant Princeton N. 
".••— -.-.. Korean >3\-eloprent , The Intcrplav of Politics and 

-vard Tni verse t 

Dhfortunately neither volure, the :gh very useful in rtner 
res; rrs, provides systeratie analyses of tne response of 
factor propor t ions to relative price 

of S: :rh Korea and Taivar. in -any :: 

our_-r tne 5C"s and 5~'s ::- provided 

Sustav Saris, -. Model of ■ro-t: ant I-nlry-ent in the :--- 

Tualistic Scene— y: the r??es of :.-•;•= an- Taivan." ~ne 

-' - n - r 1 rf I r-"3l o-~ont St.--;. e r ry 1?~5. So-'ever, there 

is only lirited explicit arrlysic rf the response to changer 

factor prices. 


"".-or a description ;f .ai--.r interest rates see A. T-. 
: - t -fa-.-ar -car , " 5:--: Aspectr rf Interest Sate Pclieies in 
less level::;; Sceneries, Tne Experience of Selected Asian 
lo.ntries," International henctarv Sunt, Staff Parens , 
•arnn, 1971. 


Table 1 
Compound Rates of Growth 

1953-58 1958-63 1966-69 

N Q N Q N 

Taiwan 9.0 1.9 13.1 2.8 20.0 13.2 

S. Korea 16.1* 5.6** 10.0 0.3 28.8 13.7 


Q is an index of industrial production 
N is the number of employees 

Data Source: U.N. The Growth of World Industry, various issues 


presents the growth rates in employment and output for 
three periods for each country. 

In South Korea the growth of employment and output 
diverged guite substantially between 1954 and 1958, were 
guite similar between 1958 and 1963, and again diverged 
in the period 2 966 to 1969. It is striking that in the 
period immediately preceding the interest rate reforms of 
1965 the growth of average labor productivity was guite 
low but increased after the reform was implemented. As 
there has been little systematic investigation of production 
in Korea, we do not know whether the similar growth rates 
of output and employment in the 1958-63 pre-reform period 
indicate no capital deepening or whether it reflects few 
gains in disembodied technical progress. Conceivably, the 
increased growth of average labor product after the reform 
might represent productivity gains as the large group of 
workers hired in 1958-63 accumulated experience. However, 
the reform witnessed a growth in the real industrial wage 
from 100 in 1965 to 132 in 1968 whereas between 1958 and 
1963 it fell from 109 to 102. 1 Thus, it could be argued 
that the rise in the interest rate helped to forestall an even 
more rapid growth in average labor product as producers re- 
sponded to a growing real wage. Moreover, improved allo- 
cation of new funds, particularly the greater share accruing 
to efficient small businesses may have accelerated the growth 

Cole and Lyman, op_. cit. Table 7.3 


of productivity after 1965. If this is true, the reform 
and the increase in the cost of capital relative to the 
real wage may in fact have resulted in a stationary or 
declining* capital-labor ratio whose effect is obscured 
by productivity growth. Without more knowledge of the 
movement of the capital stock (despite acknowledged 
measurement difficulties), it is impossible to infer pre- 
cise results from this experiment in altering relative 
factor prices. 

The data on Taiwan are equally ambiguous. From 1953 
to 1963 there was substantial growth in labor productivity. 
Yet Fei and Ranis find only a 33 percent increase in 
capital per worker in the industrial sector between 1952 
and 1969; a smalls increase must have characterized 1953 
and 1963. If the data are correct, this implies that the 
1953 to 1963 growth in labor productivity must have been 
attributable to intersectoral shifts and/or intrasector 
productivity growth, perhaps stimulated by the high real 
interest rates. However, between 1966 and 1969 there was 
a marked increase in the rate of job growth relative to 
that of output, perhaps reflecting a decrease in the 
potential for further disembodied productivity growth. 
In sum, it is difficult to easily identify the impact of 
appropriate factor prices on- Taiwan's employment performance, 
certainly not at the aggregate level. 


A paper by Williamson designed to explore the effects 
of changes in relative factor prices in the Phillipines 
brought about by import liberalization and devaluation 
indirectly considers changes in the ratio of capital to 
labor costs on the rate of growth of employment. Williamson 
finds that the elasticity of substitution of labor for capital 
is greater than unity and that the speed of adjustment of 
companies to changes in the wage rate is fairly rapid. 
However, he does not explicitly use the price of capital 
in his analysis and his method, is open to many of the 
objectives mentioned by Acharya . He does find that during 
the period of liberalization intersectoral resource allo- 
cation dramatically improved, an oft-predicted but rarely 
verified benefit of liberalization. If this indeed oc- 
curred, output could grow more rapidly than employment for 
the entire industrial sector even if capital deepening were 
discouraged by the change in relative factor prices. 

J. G. Williamson, "Relative Price Changes, Adjustment 
Dynamics and Productivity Growth: The Case of Phillipine 
Manufacturing" Economic Development and Cultural Change , 
Oct. 1971. 

Williamson notes that intra -sector productivity growth 
was negative during this period so that there was limited 
aggregate growth in industrial productivity despite the gain 
from reallocation. 


Another study of Williamson, also analyzing the 
impact of factor prices in the Phillipines, uses the 
price of capital and the capital stock explicitly, thus 
leading to more confidence in the results. Williamson 
finds that changes in the ratio of wages to the user cost 
of capital explain a substantial fraction of the growth 
of capital-labor ratios in the Phillipines between 1960 
and 1966. Despite the growth in the user cost of capital, 
nominal wages rose more rapidly, inducing increasing capital 

We briefly note the experience of Singapore during 
the 1960 *s as an illustration of the potential effects of 
a constant or slowly rising nominal wage. Between 1968 
and 1971, the rate of growth of output in the industrial 
sector was 24.0, that of employment 17.7, and that of 
real wages - 2.3 percent per annum. 

Finally, the effect of import quotas hae often been 
cited as a major deterrent to the success of small, labor 

J. G. Williamson, "Capital Accumulation, Labor Saving 
and Labor Absorption Once More," Quarterly Journal of 
Economic . Feb., 1971. 

See, however, Gary Saxonhouse's comment on Williamson, 
Quarterly Journal of Economies. May, 1975. 


intensive craft firms who do not have the ability to 
"lobby" for a fair allocation of raw materials. After 
the liberalization of Pakistan's foreign exchange regime 
in the early 1960's, many of the efficient, smaller machine 
producing firms were able to expand their scale as imported 
raw materials could be purchased in the open market. As 
the system gradually moved back towards quantitative controls, 
these firms complained of difficulty in obtaining sufficient 
materials to continue their expansion, thus slowing the rate 
of growth of both output and employment. 

The preceding survey of the response of employment to 
changes in relative factor prices omits an important effect, 
namely, the more rapid growth of capital accumulation gene- 
rated by a substantial response of total private saving to 
increased real interest rates. In South Korea, Brown found 
a substantial correlation of the private saving rate with 
the real rate of interest. Thus, private saving as a 
percentage of GNP increased from 3.9 percent in the year 
immediately preceding the interest reform to 9.8 percent 
by 1967. Moreover, statistical analysis confirms this 
increase was entirely attributable to the rise in the real 

For an extended discussion see Hiromitsu Kaneda and 
Frank C. Child, "Small-Scale, Agriculturally Related In- 
dustry in the Punjab," (£>avis, 1971) Working Faper 11. 

Brown, op_. cit . and G. Brown "The Impact of Korea's 1965 
Interest Rate Reform" (mimeo). 


interest rate and not to higher real income. 

Unfortunately, there are n.< other analyses of the 
interest responsiveness of total private savinq rather than 
of one form of saving such as savings accounts, but if 
such interest responsiveness is typical, its potential 
for aiding capital accumulation and hence employment 
is evident. 

The preceding survey of the little evidence available 
indicates that changes in factor prices, particularly that 
of capital, are difficult to document as a source of the 
rapid growth of industrial employment in Taiwan, and South 
Korea. Relatively constant wages seem to have played an 
important role in Singapore's successful employment per- 
formance, while the increased price of capital appears to hav« 
had limited effect in the Phillipines given relatively rapid 
growth in industrial wages. Whether or not the success, 
such as it was, of Singapore, South Korea and Taiwan are 
replicable in other economies in opens ^c iuescior*. A 
number of special factors exist. Tn the two latter countries 
strong governments, made stronger by immedirte external 
threats, were able to obtain the acquiescence of sc-.ctorr; 


Raymond F. Mikesell and James E. Zinser. "The Mature of 
'the Savings Function in Developing Countries! a Survey rf_ 
the Theoretical and Empirical Literature," Journalot* "j con canic 
' Literature, March, 1973." 


oc classes who might otherwise have opposed policies 
leading to potential losses from the change in economic 
environment. In Singapore, recent racial clashes and 
the separation from Malaysia may have had similar effects 
on cooperation. Secondly, all three countries are rela- 
tively well endowed with entrepreneurs i thus, given a 
change to a more favorable economic environment, we would 
expect greater adaptation to the new opportunities than 
might characterize more ski 11 -constrained economies. The 
ability to search for new production methods, to adapt 
central core processes and to exploit new labor intensive 
product lines made profitable by the altered factor prices 
may be a relatively rare capability. Moreover, in all three 
economies^ domestic abilities were augmented by considerable 
foreign skill, usually in the form of direct investment. 

Few LDCs are likely to be as open to such aid, given current 

ideological propensities. A third factor was the openness 

of these economies. The competitive structure, especially 
the emphasis on exports, undoubtedly increased the responsive- 
ness to changed relative factor prices, for reason indicated 
earlier. Finally, in at least two of the countries (Singapore 
and Taiwan) either a strong agricultural sector or the 

For examples see Gustav Ranis, "Industrial Sector Labor 
Absorption," Economic Development and Cultural Change , Oct., 197: 


On the probable benefits from direct MNC investment see 
G. Helleiner, "Manufactured Exports from Less Developed Countrie 
and Multinational Firms." The Economic Journal . March, 1973. 


imports of food from a relatively stable world market 
allowed the price of a major wage good to be kept steady, 
thus reducing any upward pressure which might have developed 
on the nominal wage paid by industrialists. 

2. Effects of Differences in Factor Prices Facing 
Firms of Different Size 

Given some of the difficulties in interpreting the 
classical cases of policy induced changes in factor prices 
and the possibility that these may be unusual-entrepreneur 
or skill-rich nations-are there alternate empirical bases 
on which to base an assessment of the potential beneficial 
effects of moving towards a more rational factor price 
configuration? There is a rapidly accumulating body of 
evidence whose major implication is that differentials in 
factor prices faced by firms of different sizes have indeed 
led to alternate methods of production. The higher wage 
and the lower interest rates typically paid by large firms 
appear to have resulted in sharp variations in factor pro- 
portions among firms within the same industry in a given 
country. Such cross sectional evidence suggests that a 
change in factor-price ratios is likely to be effective 
if combined with competitive pressures in the output market. 
We turn to a review of the available evidence. 

A large number of empirical studies have examined diffe- 
rences which exist among firms of different size (as measured 



by number of employees). Of particular interest is the 
increase in the capital-labor ratio as the size of firm 
increases for a given two digit industry such as textiles 
or food processing. This pattern at least partly re- 
presents the increase in the use of equipment, tools, and 
mechanical conveyors in response to increasing wage levels 
as firm size goes up; it being well documented that the 
wage per worker is highly correlated with firm size. The 
earliest demonstration of these now conventional findings 
appeared in analyses of Japanese manufacturing and the 
results have been verified for almost all LDCs which have 

Among the studies of Japan are two by T. Watanabe, 
"Economic Aspects of Dualism in the Industrial Development 
of Japan," Economic Development and Cultural Change , April 
1965 and "Industrialization, Technological Progress and Dual 
Structure" in L. Klein and K. Chkawa , Economic Growth; the 
Japanese Experience Since the Meiji Era (Homewood, Richard 
D. Irwin, 1968). 

The results of a large number of analyses of the dual 
structure of Japanese industry are summarized by M. Shinohara 
in B. Hoselitz, ed. The Role of Small Industry in the Pro- 
cess of Eoconomic Growth (The Hague ; Mouton, 1968). 

Among tne studies wnich confirm the general qualitative 
pattern of increasing capital-labor ratios by firm size with- 
in two or three digit branches are; 

Gustav Ranis, Industrial Efficiency ^.nd Economic Growth; 
A Case Study of Karachi , (Karachi, Institute of Development 
Economics, 1961 ); 

A. R. Khan, "Capital Intensity and the Efficiency of Factor 
Use-A Comparative Study of the Observed Capital-Labor Ratios 
of Pakistani Industries," The Pakistan Development Review, 
Summer, 1970; 

Saul Trejo, Industrialization and Employment Growth; Mexico 
1950-65 (Ph.D. Dissertation, Yale University, 1971); 

Patricio Meller, "Production Functions for Industrial Estab- 
lishments of Different Sizes: the Chilean Case", Annals of Ec< 
nortec and Social Measurement , Fall, I975f. 

I«L.O, Sharing in Development -a Programme of Employment , 
Equity and Growth for the Phillipines (Geneva, ILO, 1974). 


been investigated, the major exception being Taiwan. 
Table 2 presents fairly typical wage patterns by firm 
size for the entire manufacturing sector in Mexico in 
1965 and Pakistan in 1960. Disaggregation by two digit 
branch reveals a similar pattern. 

Thus, even if companies of all sizes paid the same 
interest rate and had egual access to imported equipment 
at the same price, such wage differentials provide pre- 
sumptive evidence that larger firms devote more effort 
to economize on labor than smaller ones. However, equal 
access to loan finance and equipment are not good des- 
criptions of reality. Typically, small firms finance 
their expansion from the saving of the entrepreneur, his 
relatives and close friends; a group likely to have limited 
resources. If borrowing outside of this primary group 
occurs, it is usually from "grey" market lenders who 
charge two to four times the going rate charged by 
commercial banks. On the other hand, commercial banks 
and governmentally sponsored industrial development banks 
usually lend to the larger firms at relatively low interest 

See, for example, George Rosen, Some Aspects of In - 
dustrial Finance in India (Glencoe, The Free Press, 1962); 
Report on the Economic Survey of Bombay (Bombay University 
of Bombay, 1959); ILO. Sharing in Development , op . cit . ; 
Trejo. Industrialization and Employment Growth , op . cit . 


Table 2 
Wage per Worker by Size of Firm 
Mexico - 1965 Pakistan - i960 

Firm Size 
(number of 


Wage Index 
(over 500 = 100) 

Firm Size 
(number of 

Wage Index 

(100 and over = 1001 



















100 and over 










Sources: Trejo, op. cit., p. 112 
Ranis, op. cit., p. 33 


rates. If interest rates of 10 or 12 percent are charged 
by these large institutions, smaller firms will typically 
pay 30 to 40 percent. 

The pattern of wage and interest differentials (as well 
as differential access to import licenses) must be assumed 
to play a major role in the pattern of increasing capital- 
intensity by size of firm as shown in Table 3 for Pakistan 
and Mexico. 

The pattern depicted for all firms regardless of branch 
typically also holds when the firms are disaggregated to the 
two digit level, though inevitably some exceptions arise. 
The smallest companies exhibit very low capital-labor ratios, 
high average product of capital and usually a somewhat 
lower average product of labor. As size increases, the 
capital-labor ratio and output per worker increase and 
the output per unit of capital declines. Further analysis 
typically reveals that the smaller firms are at least as 
efficient as the larger ones in the sense that if both were 
to face the same socially relevant factor prices (say the 
wage rate paid by small firms and an interest rate which 

See the evidence provided by Chandavarkar , op. cit , 
pp. 61-62. 


Table 3 
Capital-Labor Ratios by Firm Size 



(nunber of 


Capital per 



(nuaber of 


Capital per 
_( rupees) 






31 ,U88 























Sources: Trejo, op. cit., Table 18 
Ranis, op. cit., Table 2 


measures the rate of return either in agriculture or small 
scale industry), the average cost of production in smaller 
firms would be competitive with that of larger firms, indeed 
often lower. 

While features of production other than differences 
in factor price ratios might explain some of the observed 
characteristics by firm size, most studies have concluded 

that they play a major role. Thus, the examination of 
capital-labor ratios by firm size provides a rich body 
of data which confirms the likely responsiveness of entre- 
preneurs to changes in their cost structure. Such studies 
have been executed for a sufficiently large number of 
■ diverse countries so that one may infer such responsive- 
ness is a fairly universal phenomenon in Asia and Latin 
America, not limited to countries with a particular history 
or culture. It characterizes both large and small countries. 
those which are usually thought to be skill-rich and those 
which are not. 

For example, production functions in which capital 
becomes increasingly efficient relative to labor as the 
desired level of output goes up. See, H. Pack and M. 
Todaro, "Industrialization, Employment and the Choice of 
Alternative Vintage Eguipment in Less Developed Countries," 
Discussion Paper 95, Economic Growth Center, Yale University, 


In addition to the analysis of census and survey data, 
a substantial literature exists based on interview techniques 
and confirms the robustness of the small scale sector. A 
number of these studies detail the skilled entrepreneur- 
ship which characterizes many craft firms in LDCs. 

However, it should be noted that neither the presence 
of abundent entrepreneurship nor many examples of efficient 
small-scale craft firms have been confirmed in sub-Saharan 
Africa. A recent ILO study of Kenya, despite its emphasis 
on the potential role of the "informal sector/' offers little 
empirical evidence that craft firms, with say 2 to 25 employees 
exist. Rather, the informal sector consists primarily of 
self-employed craftsmen such as tailors and carpenters who 
do not produce products which can compete with typical in- 
dustrial goods in contrast to the craft firms found in the 

For example, Edward H. Smith, "The Diesel Engine Industry 
in Pakistan's Punjab," (Islamabad, A.I.D., 1970); Leonard 
Dudley, "Learning and Productivity Change in Metal Products," 
American Economic Review , Sept., 1972 analyzes the Colombian 
metal working industry; H. Kaneda and Frank Child "Small 
Scale Agriculturally Related Industry in the Punjab," (Davis, 
1971). For a very useful survey of additional studies see 
Bruce Johnston and Peter Kilby, A griculture and Structural 
Transformation (New York, Oxford University Press, 1975), 
Especially chapters 3,7, and 8. 

Employment, Incomes and Equality in Kenya , (Geneva, ILO, 1972] 


Indian subcontinent or Latin America. The absence of 
smaller firms and able entrepreneurs would, if generally 
true , require a different approach to obtaining labor 
intensive development, as the response to changes in factor 
prices may not be adequate. 

C. Policy Advice to LDCs 

1. The Need for LDC Government Agreement 
I will take as a point of departure that a labor inten- 
sive development process will require the active cooperation 
of the central government of an LDC. Although it is possible 
to attempt to stimulate labor intensive production without 
a redirection of government policies, this appears to me to 
be, unsustainable in the absence of changes in relative 
factor prices and increased competitiveness in product 
markets. One might envision, for example, advice on an 
individual basis from A.I.D. financed private advisers on 
small business and appropriate technology to a target group 
of companies in an LDC. However, the aid recipients will 
not, in the aggregate, be able to obtain an increasing 
share of investible funds unless current policies of arti- 

A careful study of Nigerian - - small business can be 
: found in Peter Kilby, Industrialization in an Open Economy ; 
Nigeria 1945-1966 (Cambridge, Cambridge University Press, 
1969). Chapter 10, in particular, emphasizes the lack of 
success of small manufacturing firms. 


ficially low interest rates combined with credit rationing 
drc abandoned. While small businesses usually exhibit 
high rates of return and could successfully compete for 
capital in a competitive market, their very smallness 
and absence of collateral work against them in a rationed 
market. Similarly, the extensive use of import licenses 
in the allocation of both capital and intermediate goods 
works to their disadvantage as it necessitates substantial 
allocations of managerial time, to say nothing of cash 
payments, to obtain the reguisite licenses. In another 
vein, unless wage good output is increased and its price 
thus kept low, the growth of nominal wages to both small 
and large firms will produce strong incentives to rely 
on' increasingly capital intensive technigues. In sum, 
the reguisite changes in the allocation of investment 
funds, import licenses, and the price of wage goods are 
beyond the influence of private, non-profit organizations 
and any other industrial extension agencies which work 
directly with LDC firms. 

Often it is argued that extension activities will 
generate a sufficient number of success stories so that 
the demonstration effect will induce a perhaps unwilling 
government to pursue a labor intensive strategy, including 
a liberalization of the credit and foreign exchange markets 
Such a strategy raises fundamental moral and political 


questions which are presumably sufficiently obvious that 
they need not be discussed here. Apart from this, it i^ 
unlikely to work. Although a small number of firms may, 
with intensive advice, identify new products, purchase 
appropriate equipment and undertake labor intensive low 
cost production, it is difficult to understand how this 
can occur on a sufficiently large scale without a prior 
change in government policies; who will lend to large 
numbers of small enterprises at low officially sanctioned 
interest rates given the perceived risks, the absence of 
collateral, and disproportionately high administrative 
costs. Yet if the "demonstration from below" approach 
is to be persuasive it is necessary for it to occur 
simultaneously on a large scale in a number of industries 
and regions and thus requires substantial amounts of 
investment funds. 

More generally, this "private-non-government" approach 
is, in a fundamental sense, predicated on the absence of 
entrepreneurs t it assumes that the critical constraint 
which has limited the growth of firms with appropriate tech- 
niques is the scarcity of able and knowledgeable business- 
men. Yet this assumption, for many countries, is counter- 
factual. The same group of studies which analyze the pro- 
duction and factor price characteristics of firms of dif- 
ferent sizes also show that large numbers of small firms 


(say with less than 50 employees) are present in many 
non-African LDCs in most branches of production; that on 
the basis of reported data they have made correct factor 
choices given the factor prices they face; and that they' 
exhibit extremely high rates of return on their invested 
capital. For example, in Pakistan, the rate of return on 
fixed capital was over 18 percent for medium size firms 
(20-49 employees) and less than 12 percent for firms with 
more than 100 employees. These are not the characteristics 
one would expect if the. true bottleneck on expansion of 
firms using appropriate technology were the absence of 
entrepreneurial skills. Indeed, they are more suggestive 
of remarkably adaptive behavior in an economic environment 
which is skewed to favor large enterprises. While private 
technical aid efforts can undoubtedly improve existing 
performance, particularly in suggesting new products and 
indicating relevant sources of tools and equipment, there 
is little reason to doubt that had small businesses been 
able to obtain access to critical inputs, such growth would 
already have occurred in many countries. It is for these 

Ranis, Industrial Efficiency and Economic Growth , 
Table 14. Similarly high rates of return have been found 
in other countries. 

Trejo op. cit . , pp. 125-30 finds substantial growth for 
those small Mexican companies which were able to borrow 
externally. Also see the references in footnote 1 , page 26, 


reasons that I take as the starting point the need to 
convince the central government of the desirability of 
pursuing a more labor intensive policy in those cases 
where this has not been true. 

It should be emphasized that the emphasis on the need 
to change the economic environment does not imply that a 
variety of technical services cannot be beneficial to 
LDCs, only that by themselves they are unlikely to exert 
sufficiently large quantitative effects to alter the course 
of an otherwise capital intensive development policy. 
Similarly, the emphasis on the probable efficiency of re- 
latively small companies is not meant to deny the possi- 
bility that large companies may be efficient and capable 
of adopting correct factor proportions in their production 
processes. Indeed there is evidence that such firms are, 
given the correct set of incentives and capable management, 
quite adroit in identifying and adopting labor intensive 
techniques. While larger firms, too, may derive benefits 
from technical advice, in the absence of economic incentives 
there may be no reason for them to seek or utilize such 

See the Kenyan examples in Pack, Employment and Producti- 
vity Growth in Kenyan Manufacturing," od. cit. 


2. Aggregate Implications of Correct Factor Choice 
Governments may be unavrare of the range of choices 
open to them in pursuing greater employment growth and 
of the magnitude of the additional jobs which could be 
created. Their existing policies may not be malevolent 
but a response to perceptions, such as a shortage of 
investment opportunities, which are not accurate descrip- 
tions of the reality of their economies. Indeed, many of 
the most harmful government interventions were designed 
to increase domestic industrial output and employment 
in a world in which it was thought that international trade 
could only be harmful to LDCs because of the alleged de- 
terioration in the terms of the trade. It is ironic 
that the policies undertaken to effect import substituting 
industrialization, originally advocated by those most con- 
cerned with income distribution and unemployment, are now 
cited as presumptive evidence of the opposition of LDC 
governments to policies which could ameliorate current 
income maldistribution and improve low level employment 
opportunities. While to be sure there are now some groups, 

For an excellent discussion of these issues see I. 
Little, T. Scitovsky, and A. Scott, Industry and Trade 
in Some Developing Countries , (New York, Oxford University 
Press, 1970). 


both business and labor, deriving considerable windfall 
benefits from the existing system, there is also exten- 
sive evidence of the recognition by many governments of 
the need to alter current policies if violent change is 
to be avoided. 

Given my premise that changes in technigue require 
changes in factor prices, it is necessary to follow a two 
pronged strategy of advice: (1) where governments are 
insufficiently aware of the employment gains which will 
result from a change in policy a demonstration is needed 
of the aggregate gains: (2) enhancement of the govern- 

The continuing blindness of many LDC governments and 
intellectuals to the perversity of capital intensive develop- 
ment policy is shown with exemplary clarity in the following 

In this latest effort to improve the 
country's image, a typical example is 
"From 31ueprints to Bricks," an expen- 
sively prepared booklet recently pub- 
lished by the Indian Embassy in Wash- 
ington. Indian sensitivity about the 
...oxcart as a metaphor for the coun- 
try's backwardness is reflected in the 
fact that the booklet . . . devotes an 
entire page to answering the question: 
"Is India still dependent on the oxcart?" 
(New York Times, March 2, 1976) p. 7 

The article then details the concern of the Indian govern- 
ment to extol mechanized production of all types, and Nehru 
is cited as having referred to modern, capital intensive 
projects as "the new temples of Modern India." The same 
article quotes an economist in Bombay: 


merit's ability to achieve the employment goals. 

a. Effects on Employment and Output. 

There have been a large number of studies of the 
choice of technique at the process level, ranging from 
flour milling to can sealing to methods of road construc- 
tion. Despite the demonstrated availability of alternate 
techniques at the process level, there are nevertheless 
very few studies of the aggregate effects which would be forth- 

1 cont'd 

I go overseas and my friends think of 
India as a long line of hungry, half- 
naked peasants. Why, the mechanized 
assembly lines are as much a symbol of 
where India's going as the bloody ox- 
cart that everybody always writes about. 

Despite a decade of attempts to show the relationship 
between capital intensive industrial production and 
underemployment in urban areas, there is little evidence 
that the message has been absorbed by LDC leaders. 

See the references in footnote 1, page 2. 


coming if all sectors adopted appropriate techniques. 

A fortiori , LDC policy makers cannot know these magnitudes. 

Thus an important contribution to generating LDC interest in 

the possibilities offered by labor intensive techniques can 

be made byi 

(1) a systematic cataloging of the economically 
efficient techniques by industry, which have so far been 
established. This would include for each process specific 
production alternatives such as the type of core production 
equipment available, alternate peripheral processes, the 
sources and costs of relevant equipment. Some sample cost 
accounting analysis such as that shown in Table 4 below 
might aid the understanding of officials. 

(2) The use of the above information in projection of 
some plan or set of growth objectives which the LDC govern- 
ment finds plausible or desirable. Such a plan may be the 

An exception is Victor E. Tokman, "Income Distribution, 
Technology and Employment in Developing Countries: An 
Application to Ecuador," Journal of Development Economics , 
May, 1975. Tokman's estimates of the aggregate gains do not 
take account of potential substitution possibilities in 
many production activities in which considerable scope for 
additional labor intensity has been demonstrated. Nevertheless; 
even within this fairly restricted framework, it is shown that 
total manufacturing employment could be increased by 17 percent 
over a ten year period above that which would be generated by 
continuing to use current techniques in expanding production 


official plan document but this is not necessary. Pro- ( 
joctionri ran be made of probable total employment growth 
without altering current production methods and with say 
two alternative factor price using more labor 
intensive techniques. The saving in capital obtained 
by producing the planned output in a less capital intensive 
manner should also be calculated, as this is a major benefit 
that is insufficiently emphasized in most analyses. The 
output of some projects which were not included in the 
original plan, but which new become feasible because of the 
freed investment resources, should be calculated. 

An illustration of the method is presented in Table 
4 using data from a study on the choice of t . ?..= in 
textile production. Four methods of producing woven shir: 
material were identified, each exhibiting considerably different 
labor requirements and capital costs. Columns 1 and 2 indicate 
the inputs required to produce an additional 100 million 
square yards of material, an increase well within the goals 
of some development plans. Column 3 indicates the capital - 
labor ratio associated with each type of process. Column 4 
shows the amount of investible funds saved by adopting the 
Lancashire loom, the least capital intensive one, rather than 
each of the others. Column 5 indicates the additional 
employment which would be generated by investing the funds 
so saved in an activity whose capital-labor ratio was no 


Table U 
Aggregate Effects of Alternate Weaving Techniques 

Type of Loom 

Requirements per 
100 million square 
yards per annum 
(D (2) 
Manyears Investment 

Capital /Labor 
Ratio (2)/(l) 


Funds Saved 











$ 35,820,000 

8 1.6U5 





$ 35,815,000 







U2, 957, 000 










Source: Underlying data were obtained from Cotton and Allied Textiles 

(Manchester, The Textile Council, 1969)- The data are analyzed 
more extensively in H. Pack, "The Choice of Technique and Employ- 
ment in the Cotton Textile Industry," in A. Bhalla, ed., Technology 
and Employment in Industry , (Geneva, International Labour Office, 

i4-665 O - 76 - 16 


greater than that of the Lancashire loorr.. These, of 
course, rust be added to the differences shown in 
Column 1 to derive the total employment differentials, 
illy, column 6 present: the percentage increase in 
output which could he gene-rated by investing the saved 
funds in additional weaving capacity. Obviously, other 

possibilities will be open, the output gain calculated 

here simply provides some orders of magnitude." 

The potential contribution cf Air; or a sponsored 

organization in systematizing information on available 

techniques and analyzing their implication for a given 
"DC is obvious. Existing en the benefits to 
be derived, industry by industry, assure that those are 
likely to be enormous and such calculations are likely, 
at the least, to stimulate LDC governments to consider 
so~e of the policies necessary to realize them. 

b. Other Policies 

vincing the government of a country of the desirabil- 
ity of changing the economic policies to establish a climate 
more fayorable to labor intensive development is necessary, 

but ~ty not be sufficient to obtain such development. 

For a more detailed discussion of these and other issues 
see h. Pack, "The Choice of Technique and Employment in the 

Textile Industry" in .-. . Bhalla, ed. Technology and Employment 

in Industry . Geneva (International labour _f fice, 19~5 ' ." 


Although we know that firms of diverse sizes use different 
techniques, the speed with which changes to appropriate 
production methods will be made may be accelerated by i 
the presence of good advisory services, especially when 
there is a demonstrated absence of entrepreneurship. 

1. Extension Services 

Extension-type activities are likely to be best imple- 
mented by those who have been involved in industrial produc- 
tion management over a long period. These managers are 
likely to have seen the continuous evolution of production 
methods and are aware that the 1976 method differs conside- 
rably from 1956, to say nothing of 1936 and that the latter 
two were quite viable in their time. Labor intensive methods , 
particularly in the peripheral processes, characterized 
American and Western European production until well after 
World War II. 

These older techniques can still be used to produce 
many high quality products which are in no way inferior to 
those produced with more recent equipment. Thus, a large 
pool of westerners exist who have been involved in relevant 
production management who could convey both the physical 
feasibility of labor intensive production as well as 
some of the organizational methods and innovations which 
surely ocurred and increased productivity. They will be more 
attuned to the possibility of manufacturing with something 
other than the latest method, especially where wages are 
a fraction of the U.S. 1955 levels and interest rates are 


■i 9s . By 
recent graduate - with little production 

^rience a ite so open to alternate 

production _ities. -- been exposed to the 

Ltion of a textbook in food processing and may 
Ltic : - ij ferent equip- 

ment. Bering texts and courses con- 

rate ail — sively on the technical ^cecrs of 

:".-. -- z'r ■ "_ : : :rr_r. r'.-' 

than or. costs. Rarely T .:e there discus if the number 

::s usee t ie relative ::s:s :f 

different types Df equipment. 

-f :cs:s and the discipline of ::::;;-. prices, 

se with produc- 
iay, in fact, have had similar ::' 

Most of the empirical studies af successful us: 
r-intensive rethods in LDCs ;:: ;;sr: on factory 

~lar.t ~ : - successful in such 

aften articulate s of the 

isibility anc snality of substi- 

tuti t sital. 7; additioi to aid froo 

managers [sits by ind *ams of success 

constitute an important 
source of advice and enco ura gement . These visits would in 


addition have the not unimportant side benefit of conferring 
prestige on manufacturers who successfully avoid capital 
intensive patterns; they will demonstrate to the recipients 
of technical counseling that there are avenues to achieve 
supra-national recognition other than installing an auto- 
mated rolling mill. Moreover, such missions may even lead 
to a strengthening of the position and prestige of the 
successful managers in the country of origin of the advisers. 

No apriori case can be made about the size of firms 
which are likely to derive the greatest benefit from ex- 
tension advice. The evidence cited in Section 3 on the 
characteristics of firm by size suggests that smaller firms 
have had, by force of circumstance, to undertake more labor 
intensive production in the past. Presumably, they possess 
more knowledge about the sources of used or appropriate new 
eguipment and the types of adjustments that may be made to 
take advantage of inexpensive inputs. Nevertheless, such 
past adaptation might have been more extensive and produc- 
tive with more information and advice. Some production 
alternatives and potential products may not have entered the 
set of choices among which small firms made past decisions. 
On the other hand, large companies with perhaps limited 
experience in choosing labor intensive processes, may initially 

need guidance in identifying sources of information. However, 
they may reguire less aid insofar as they employ a technical 

staff which may be used in these activities. Thus, the 
provision of industrial extension services should, at 
the outset, be neutral with respect to size until infor- 
mation on the intensity of need can be obtained, 

2. Tax Policies 

Although higher interest and foreign exchange costs 
are likely to provide strong incentives to the search 
for more labor intensive equipment, some measures are 
open to the government to augment these incentives, yet 
perhaps reduce opposition to the impending changes. Most 
LDC governments levy some form of business profits tax: 
indeed, the wide variety of tax holidays and accelerated 
depreciation are directed at reducing these taxes in the 
hope of generating greater investment. As indicated 
earlier, many of these devices decrease the cost of using 
capital and implicitly encourage capital intensive produc- 
tion methods and should thus be ended. An alternate set 
of tax provisions for reducing the tax burden might be 
substituted which would further encourage the search for ' 
labor intensive techniques. Reductions in the average 
rate applicable to a given level of income could be made 
contingent on companies presenting a costing of alternate 
production processes when considering either replacement or 
expansion. Presentation of detailed cost estimates for at 


least one more labor intensive process, including peri- 
pheral activities, could be made the standard for 
being placed in a preferred tax category. If the comp- 
any chose the more capital intensive process despite 
lower costs at the prevailing market prices of factors, 
its average tax rate would be increased, rather than 

supporting evidence. which would be submitted by compa- 
nies. Some fairly difficult issues are embedded in 
these calculations, particularly with respect to the 
interest and wage rates to be used by firms. If the 
prevailing market levels are not socially appropriate, 
the computations will have limited usefulness as a guide 
to tax policy. However, some firms may find that even, 

at existing factor prices, labor intensive eguipment 

yields the lowest costs. 

Clearly, given limited administrative ability, all 
firms could not be required to submit such proposals. 
Presumably, it would be best to start with the largest 
companies and then move down through the size distri- 
bution until administrative ability is exhausted. An 

See, for example, the study of Pickett e£ al . , op_. cit . 

Tabic A 

Costs of Weaving Shirting Material 
(dollars per 100 yards) 



Weft Waste 

Pi rning Costs* 

(including depre- 
ciation and inte- 
rest charges, as- 
suming an interest 
rate of 20 percent 
per annum) 

Cost of Labor 
(wage=$832 per 

Average Unit 


Air jet 






















Source: Cotton and Allied Textiles , Vol. II, p. 83 for lines 
1-4. Line 6 calculated from pages 86-90. 

including transport and installation costs egual to 20 
percent of the cost of a battery loom. 


obvious and important potential role for bilateral advice 
would be a catalogue of alternate processes as well as 
training for LDC administrators, facilitating their abi- 
lity to establish the accuracy of the alternatives pre- 
sented. Compliance with tax provisions could be aided 
by the extension service. 

Such tax provisions reguire some confidence that 
more efficient, labor intensive alternatives exist whose 
adoption would, in fact, result in lower costs for the firm, 
That such choice exists in most industrial activities is an 
underlying assumption of this paper. At a corrected set 
of interest and foreign exchange rates more labor in- 
tensive technigues are, in fact, likely to be the least 
cost technigues for producing a large number of products. 

3. Strengthening Ability to Finance Loans 

One other area in which a considerable contribution 
could be made by AID is strengthening the ability of LDC 
lending institutions. The arguments made earlier for in- 
creasing the access of small scale, labor-intensive firms 
to capital ignored the ability of the existing lending 
institutions to effectively implement lending programs. 
Clearly, not all loan applicants will have a reasonable 
chance of success. Some screening must take place even 
with high rates of interest which should discourage the 


loss efficient firms from applying. Moreover, the book- 
keeping involved after the loans are made is not an easy 
task given the potentially large number of borrowers and 
the relatively limited experience found in the financial 
sector in many LDCs. Augmenting the administrative capa- 
city of the lending sector may thus allow the removal of 
a critical bottleneck tQ small scale lending. Fortunately, 
the bookkeeping for these loans should be a fairly labor 
intensive activity, providing jobs for many high school 
graduates. Assuming that both the processing and book- 
keeping of loan programs will not be automated, the trai- 
ning would best be undertaken by those who have had ad- 
ministrative experience before routine banking activities 
were themselves automated. This criterion suggests older 
middle level banking officials in the DCs or some of the 
demonstrably successful ones from LDCs as the "teachers." 


The emphasis of this review of issues has been on the 
necessity of convincing LDC governments of the benefits to 
be obtained by a labor intensive approach to their future 
economic development and the need for them to alter the 
prices which businesses pay for their factors of produc- 
tion in order to align the private profit decision with 
that of the national interest. The major beneficiary 


of the proposed changes would be the small business sector 
which in many countries has been found to be labor intensive 
and highly profitable, but severely discriminated against 
by current policies with respect to credit and the availabi- 
lity of imported raw materials. Increasing the price that 
larger companies pay for capital goods by freeing the 
interest rate from legal limitSj as well as raising the price 
of foreign eguipment, is also likely to result in their 
changing the mix of capital and labor used in their pro- 
duction. If this first order of the agenda can be achieved, 
it would constitute an important change in perception and 
commitment, without which almost all other actions are likely 
to be futile. Nevertheless, it would be pollyanish to 
assume that changes in factor prices are a magic wand 
whose movement will , immediately lead to a maxi- 
mum adjustment in factor proportions. 
Even without technical aid or e: 
labor intensity of aggregate output should increase as the 
result of the expansion of the gunntitative importance of 
small firms and adjustments by larger ones. Both sector^ 
though, would almost certainly benefit from a variety of 
technical advice which would increase familiarity with 
efficient, but older, eguipment and peripheral processes, 
such as material movement. The particular form which such 


aid should take has not been specified, though the indi- 
viduals who should provide it are identified as those vho 
have had production experience in particular industries 
before some of the recent mechanization. These advisers 
could bo organized by AID or international organizations: 
they might be resident in a country for a year or visit 
for shorter periods; they would be expert in well specif Led 
production processes such as meat packing rather than "food 
processing" generalists; they would thus be older business- 
men rather than academics, production managers or super-; 
visors rather than staff engineers. 

Such technical advice should strengthen the adjustment 
in factor proportions to changes in factor prices, providing 
yet more concrete evidence to governments of the beneficial 
effects of the latter. But, it must be noted that withe 
a change in the set of economic incentives faced by business, 
there is little reason to believe that technical advice by 
itself will lead to substantial changes in the labor in- 
tensity of production. 

The entire discussion of this paper has been in ter.-s 
of the options open to affect the development of the manu- 
facturing sector. Although in many LDCs manufacturing employ- 
ment is a relatively small part of total employment, it is 
nonetheless 'true that an increase of 50 percent in the number 


of satisfactory jobs provided by this sector could make 
a substantial dent in the number of poor currently engaged 
in informal urban activities. 

The potential for labor intensive development in 
other sectors can also be shown to exist. The import 
of most analyses of the green revolution is the potential 
labor intensiveness of the new technology, a potential 
often not realized because of distorted price structures, 
particularly the subsidization of modern farm equipment 
such as tractors. The correction of distorted factor 
prices would thus result in greater numbers of agricultural 
jobs, reducing the absorptive burden of the industrial 

A number of studies are beginning to appear about 
the possibilities of substituting labor for capital in 
construction activities such as roads and housing. These 
analyses confirm the possibility of limiting the use of 
equipment in some, though not allj phases of construction 

For a good review of the issues see Johnston and Kilby, 
Agriculture and Structural Transformation , op . cit . 


Examples are George Irwin, Roads and Redistribution 
(Geneva, II.O, 1975) and a forthcoming ILO study on alter- 
| nate techniques available in home construction, by W. Paul 
Strassman. A number of IBRD studies are also in process. 


projects. While here, too, factor prices faced by private 
contractors and/or government agencies will be of importance, 
other obstacles such as the organization of huge numbers 
of workers, difficulties with the seasonal supply of 
workers, and so on will be considerably more important 
than in the manufacturing sector; thus, organizational im- 
provement would probably require more emphasis than in the 
manufacturing sector. 

The priorities outlined imply substantial scope for 
AID: arranging for advisers who can persuade LDC govern- 
ments of the need for change; providing these advisers with a 
detailed information system about available production options 
(including peripheral operations as well as core equipment); 
and providing advice on techniques for altering factor 
prices including the use of variations in profit tax rates 
to induce a search for appropriate equipment. Provision 
of technical production advice will also require substantial 
AID efforts in identifying individuals who are not among 
the traditional purveyors of development . . _ . wisdom. 
Intensive search within the business community will thus 
be necessary. 

These activities, carefully implemented for (initially) 
a limited number of countries should be instrumental in 
augmenting the number of employment opportunities which 
allow higher incomes than -those earned by the poorest 
segments of the non-rural population. 



Appropriate Institutions for Appropriate Technology: 
A Framework for Analysis and Guidelines for AID 

(By Dr. Bruce Koppel and Dr. Gary Hansen, East-West Technology anc 
Development Institute, Honolulu, Hawaii, April 1946) 


What is appropriate technology? From some points of view it 
describes a category of particularly adaptive and ingenious technical 
choices that have been an attribute of rural areas and poorer countries 
for several decades. The current appropriate technology movement from 
this perspective is an attempt to acknowledge and encourage this sort 
of creativity and, through various approaches to exchanging information, 
an attempt to proliferate recognition that there is an alternative. 
Another perspective on appropriate technologies is that it represents 
a viable path to economic growth that it is especially suited to the 
resource limitations and endowments of poorer areas and offers an 
alternative to the unsatisfactory transfer of advanced technologies; 
and reliance on the trickling down of the benefits of advanced technology 
utilization to less advantaged sectors. The current appropriate 
technology movement from this vantage is an attempt to legitimize and 
elaborate the option, to incorporate it into the profiles of national 
planning, and, through various approaches to generating and diffusing 
"appropriate technologies," an effort to reduce unbalanced economic 
growth, and increase employment in areas with chronic shortages of 
resources necessary for more rapid growth under other alternatives. 

This paper will argue that a distinction can be drawn among appro- 
priate technologies that crosses between these two perspectives and 
which may provide a more useful basis for thinking in practical terms 
about the roles of appropriate technologies in social and economic 
change. It will then be argued that the basic problem for research and 
extension is to actively incorporate into planning a more complete 



specification of the diffusion profile of anticipated and desired users. 
Processes to implement that inclusion are discussed and roles for effective 
allocation of AID resources identified. 

Two types of appropriate technologies can be defined in relation 
to the problems uniquely addressed and the objectives and means character- 
istically offered. The two types are: product design and production 

The major problem addressed by product design appropriate technologies 
is the lack of access by low and moderate income producers and those in 
certain production (e.g., rice), service, or infrastructure (energy) 
functions to capital choices which can enhance output and return. In 
developing solutions to the problem of access sets of private and social 
objectives have been specified as objectives. The private goods to 
be maximized are increases in output and improvements to returns to 
labor. The social goods to be maximized are increases in output and 
conservation of critically short or maldistributed resources (cash, 
access to credit, fuel). Since the principal resource constraint is 
capital, — ranging from farmers lacking cash or credit to purchase 
equipment to the high foreign exchange costs of importing equipment, 
the preferred means to realize the objectives noted above is to sub- 
stitute a smaller, simpler, more economical technology for high-cost 

The major problem addressed by production technology alternative 
technologies is the scarcity of perceived viable alternatives to capital 
expansion paths; paths which are typically labor displacing and 


characterized by high per-worker and per-workplacc investment. In 
developing solutions to the problem of marginally viable alternatives, 
the basic private goods to be maximized are increased or maintained 
output levels, returns to investment and market position. The principal 
social goods to be maximized are increased or maintained output and 
product quality and increased employment. The principal resource 
constraint is uncertainty about firm expansion paths which are not capital 
intensive. Uncertainty and risk can be attributed to several factors, 
including the desmonstration effects of comparable product output in 
industrialized societies, but. a more basic set of factors is the perceived 
inconsistency between non-capital intensive paths and attempts to 
increase standardization, to enhance the predictability in estimating 
required inputs and attainable outputs, and to break critical input 
and output bottlenecks. In developing appropriate technology solutions 
to the problem of the uncertainty of alternatives to capital-intensive 
expansion, the preferred means is to reduce the uncertainty by substi- 
tuting effective combinations of labor and capital to capital alone. 
The next two sections will discuss the major "costs" which are 
typically confronted in evaluating alternative means within each of 
these two types of appropriate technologies, the major routes developed 
for trade-offs between objectives and costs, the problems of defining 
and locating appropriate target groups, and the principal derived or 
second generation problems of appropriate technology utilization. An 
outline of the argument for each type of appropriate technology is 
presented and then illustrated through discussion of problems of 

74-665 O - 76 - 17 


agricultural development and rural industrialization. In Section III, 
the discussion is focused on the problem of identifying R and D functions, 
In Section IV, a set of roles for AID are identified which address both 
short and long run objectives concentrated on enhancing R and D 
effectiveness and appropriateness. 


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For low-income farmers, increases in output and/or improved 
returns to investment can be attained through a wide range of alter- 
ations in the role of technology in agricultural production functions. 
Mechanical seeders, dryers, threshers, tillers, pumps, and milling 
devices are only a few examples of equipment which, if properly introduced 
and utilized, can yield substantial income gains for the agricultural 
producer. It is frequently the case however that these items and 
other forms of agricultural equipment are available on the market at a 
price which exceeds the purchasing power of low-income groups and at 
a scale inappropriate for smaller parcels. Broader accessibility to 
these capital goods can only be achieved by reducing the cost of the 
equipment and/or enhancing the purchasing power of the end user. 
Equipment redesign frequently exists as a cost reducing alternative. 
Many agricultural devices are frequently imported and incorporate overly 
elaborate design characteristics. In-country modification of imported 
equipment or development of new models can yield substantive cost 
reductions through the application of simplified design requirements, 
the utilization of local materials, and/or the employment of low-wage 
labor in small-scale fabrication firms. Such cost reducing modifications 
can also yield significant savings of foreign exchange through decreased 
dependency on equipment imports. 

While a wide range of product design are available to improve small 
farmer incomes, the question of "appropriateness" must be comprehended 
within a larger social context. In more conventional terms, the 
appropriateness of any one particular technology choice must include 


some assessment of externalities or social opportunity costs (i.e., what 
may be good for the small farmer may or may not be consistent with 
the larger public good). Some candidate technologies may yield sub- 
stantial gains without any significant concomitant social costs but the 
more common example is less benign. For example, the introduction of 
more efficient milling equipment may yield higher levels of rice output 
but at the same time exact a heavy price in the corresponding displace- 
ment of traditional methods of handpounding, a highly labor intensive 
operation. The result in social terms can be a sizeable loss of 
employment and income for the rural labor force. 

The problem of assessing the appropriateness of a particular 
technology suggests that a range of trade offs are available to the 
decision maker in coping with the task of minimizing opportunity costs 
and that certain compensatory actions (public works projects, resettle- 
ment programs, etc.) to offset the costs in loss of income for displaced 
labor may be required. 

The above example suggests that anticipating and calculating 
social repercussbns of any technological change constitutes an integral 
component of any evaluation process to assess whether a particular product 
design is appropriate or inappropriate. 

Another major component is the likelihood that the product will reach 
the desired target group. For example, even if measures are taken to 
reduce the cost of equipment, market outlets may be so distantly 
located as to prohibit the small and low-income farmers from getting 
real access to these products. In addition, market outlets may be 
unavailable for absorbing the expected production increased arising from 
the use of new equipment. 

In brief, the choice of any particular product design will likely 
necessitate additional assessments of certain policy and organizational 
measures to assure that target groups are able to benefit from the pro- 
posed technical change. In many cases the process of assessment should 
illuminate significant relationships between the problem of product 
design and the kinds of institutional capabilities available for 
undertaking the tasks of securing its diffusion and adoption within a 
particular clientele group. Thus, proposed designs which contain 
moveable parts and attendant requirements for high-precision fabrication 
may entail a reliance upon larger scale manufacturing firms. While 
these firms, in contrast to smaller metal working industries, are able 
to produce more sophisticated designs they may not have established 
market outlets in more remote areas. In addition, these firms may 
enjoy the status of being shielded from normal competitive pricing by 
virtue of government allowances which provide assured access to credit 
and imported raw materials. These advantages may incline firms to 
price their products beyond the reach of lower income farmers. 

In the first line production of a particular design, it may be 
necessary to overlook the above constraints and engage the services of 
larger fabricating firms. Larger firms are in a more secure position to 
invest more resources in distribution and marketing services. While 
the initial diffusion profile may be skewed in the direction of higher 
income groups, in areas of close proximity to urban centers, the eventual 
entrance into the market of more competitive and perhaps smaller scale 
producers may give rise to a somewhat more equitable diffusion profile. 
These diffusion bottlenecks can also be partially removed by supplementary 


policy actions in the provision of subsidies for producers or for 
the target clientele. 

While the pattern of institutional involvement and diffusion 
profiles may be somewhat constrained when assessing the appropriate- 
ness of high precision product designs, the boundaries of choice are 
somewhat more elastic when considering the manufacture and marketing 
of less sophisticated designs. In those instances where product design 
requires less attention to precision and quality control, there is much 
greater prospect for embedding the proposed technical change within 
traditional patterns of market and production capabilities. Under 
these conditions small scale fabrication shops can assume a major role 
in the production and marketing of a new product design, a feature 
which likewise assures the provision of locally available back-up 
repair and maintenance services. The utilization of small firm manu- 
facturing capacities also serves to generate second order employment 
and income effects in that their production functions are largely 
characterized by labor intensive methods with material inputs from 
local sources. While maximizing the role of the small farm sector may 
yield substantial gains with respect to the wider distribtuion of a 
new product and the generation of attendant spill over growth in a more 
decentralized fashion, it also places a heavy burden upon the industrial 
extension service in their efforts to introduce a new product line among 
a widely dispersed and extremely diverse array of small fabrication 
shops. An assessment of alternative policy and organizational measures 
for product diffusion would therefore entail some weighing of the short- 
and long-term costs and benefits of engaging the production and marketing 
capacities of the small firm sector. 

F4-665 O - 76 - 18 


In some cases, however, the particular dimensions of a proposed 
product design will require major organizational and Institutional 
changes in order to secure its acceptance and effective utilization by 
the target group. This is especially the case in the diffusion of some 
so-called "indivisible" technologies, where the product design cannot 
be scaled down Into smaller self contained units to meet the needs of 
Individual small farmers. The appropriateness of these innovations, and 
more particularly their capital expense, can only be justified if the 
end users are organized to fully utilize the proposed design. The full 
dimensions of this problem are implied in both the acquisition and utiliz- 
ation of new product designs. Thus, the capital costs of some technical 
inputs exceeds the purchasing power of the individual farmer, a condition 
which necessitates a mutual sharing of saving and investment burdens 
among an aggregated clientele. A similar need for organized responses 
within the target group would also apply with respect to product 
utilization. The use of tubewells, tractors and other indivisible 
technologies may require a considerable degree of regulation and planning 
in the allocation of their services at peak demand periods, a condition 
which in turn entails significant modifications and indigenous social 
innovation in the collective organization and allocation of work patterns 
within villages. 

In summary, the introduction of new product designs characterized 
by the need for group responses in the diffusion profile may require 
substantial and sustained extension programs to strengthen or establish 
new mechanisms of reciprocity and collaborative decision-making within 
the clientele group. It is often the case, however, that government 


extension services and other auxiliary public agencies are unable to 
provide an adequate level of support for new organizational structures 
within village communities. New capital equipment consequently remains 
either under-utilized or falls under the control of groups not identified 
with the target clientele. Cumulative research on the establishment 
of agricultural cooperatives designed to assist low-income farmers 
Indicates that in most developing areas control over these organizations 
and the benefits they provide eventually accrue to the more privileged 
and higher income groups within the rural sector. In summary, the 
appropriateness of a particular product design will need to be assessed 
with respect to the likely capacities for generating sustained organized 
responses within the target group in order to avoid unacceptable distor- 
tions in the diffusion profile. 

Calculation of an initial cost-benefit estimate for a particular 
product design along with an attendant assessment of anticipated 
bottlenecks and distortions within the diffusion process needs to be 
supplemented by analysis of likely intended and unintended social and 
institutional implications of the extensive acceptance of a particular 
technological innovation. On the supply side of the equation, a wide- 
spread adoption profile will likely necessitate the increased provision 
of institutional services (spare parts distributors, maintenance and 
repair shops, credit facilities, etc.) in sustaining the optimum 
utilization of a particular product innovation. Likewise, on the demand 
side, the extensive adoption of a new product design will likely entail 
major increases in output and a larger marketable surplus. In the case 
of agricultural commodities characterized by low elasticities of demand, 


substantial production increases at the aggregate level will result 
in price reductions and attendant income losses for small-scale producers. 
A downward price spiral of this kind would defeat the intent of a 
technological change designed to assist small farmers and would need 
to be mitigated by such compensatory actions as the introduction of a 
price support program, a measure which implies a more encompassing range 
of institutional services within the rual sector. The problem of 
initiating compensatory policies becomes even more complicated in the 
case of small-scale production of export commodities where producers 
are highly vulnerable to the cyclical fluctuations of supply and 
demand in world trading patterns. 

Anticipating the secondary and tertiary effects of technological 
change assumes greater significance when seen from the perspective that 
a proposed product design innovation may foster increased producer 
dependency upon market services. Since most small farmers are without 
capital resources as a cushion against temporary vacillations in market 
performance, any adoption of a new product design which involves less 
insularity from market forces will pose high levels of uncertainty and 
risk for the small-scale producer. These vulnerabilities are magnified 
when new product designs enhance producer specialization in one or two 
commercial crops at the expense of abandoning traditional and more 
diversified cropping strategies for home consumption and sale. A 
temporary price decline under conditions of increased specialization 
can represent a substantial loss of income for some small producers and 
an attendant decline in their access to requisite consumption items 
within the larger market arena. This problem is further compounded if 


product designs cannot be re-deployed or substituted for other production 
functions thereby preventing small farmers from engaging In compensatory 
actions In the pursuit of more profitable cropping strategies. Likewise, 
the widespread adoption of certain product designs may constrain a 
farmer from reverting to former production practices, a condition which 
would have serious repercussions given a sudden scarcity of comple- 
mentary production factors or the demise of adequate technical services. 
Thus, intermittent or prolonged shortages of petrol and/or spare parts 
may make it prohibitively expensive to sustain the operation of a 
motorized tilling device but equally expensive and impossible to revert 
back to animal power, given their past replacement and increasing 
unavailability as an alternative production input. 

Potential stresses and bottlenecks mentioned above increase 
geometrically under conditions where the successful diffusion and 
adoption of one product design leads distributors and consumers to seek 
new avenues of capital substitution and expansion for new or complementary 
production functions. In these instances, one or several technical 
innovations may unleash an accelerated pace of technological change which 
is both unanticipated and undesired when viewed from a larger perspective 
of the spill over effects and disruptions these engendered in patterns 
of cooperation, income distribution and labor allocation within village 
communities. Much of the contemporary literature in rural development 
is a chronicle of how proffered and well intended technical changes have 
triggered a chain of social and economic reactions which could neither 
be constrained by public policy or adequately accommodated within the 
larger social system. It would seem imperative therefore that the 


proposed diffusion of a new product design would involve both projection 
of anticipated secondary and tertiary ramifications with respect to the 
existing social order and an assessment of the prospect of mounting an 
effective set of policies and administrative instrumentalities in 
coping with these changes. 


The concern for introducing appropriate changes in production 
technologies is very much associated with the problem of how to 
accelerate the transmission of growth opportunities to the rural 
sector and secondly the need for reducing capital expenditure costs 
per unit of increased employment. In the first instance, it is 
frequently the case that industrial growth patterns tend to cluster 
around larger urban areas where modern production processes character- 
ized by capital intensity and high wage labor assume an important if 
not dominant role in shaping the larger configurations of investment 
and employment patterns within the national economy. At the same 
time, however, a spatial distribution of growth opportunities in favor 
of larger urban areas creates a corresponding loss of economic momentum 
in rural areas serving to further exacerbate intersectoral discrepancies 
in income and employment generation and accelerating the pace of rural 
to urban migration. One corrective action in overcoming this sectoral 
dualism and the attendant dysfunctional consequences in welfare and 
income disparities is to undertake a program of industrial dispersion 
whereby new production capacities are deliberately distributed and 
assimilated within the rural sector. The second concern for enhancing 
labor-capital ratios simply reflects the need for production technol- 
ogies compatible with labor abundant and capital scarce resource 
endowments. In this situation, an industrial profile based upon capital 
intensive production technologies serves to exact a heavy price in social 
opportunity costs by making a scarce resource less available and under- 
utilizing an abundant resource (labor). 


The assessment of appropriate production technologies requires an 
understanding of the organization of production within identified target 
firms and the direction in which these production structures can be 
modified in order to attain both higher output and greater use of labor. 
A preference for descaling production technologies into smaller units 
reflects not only an effort to capitalize on the pre-existing pattern 
of traditional small-scale production units within the rural sector, 
and the attendant range of resources (capital, labor, and management) 
at their disposal, but the interest in small production units also 
reflects a concern to avoid the large resource investments for infra- 
structure improvement usually required in support of larger production 

With small and medium firms as the identified target group an 
assessment is then in order with respect to the range of possible and 
appropriate changes in production technologies within these structural 
constraints. An initial analytical component would be the charting 
of likely expansion paths for smaller firms (market surveys), in order 
to establish probable opportunities for increased production, and/or 
improvements in existing product lines, or the adoption of new product 
lines. Once a new product design has been identified the next analytical 
phase would be an assessment, of the range of alternative production 
technologies available for utilization in the production process. A 
final assessment would entail some calculations concerning the capacities 
of the target firms and society within which they are embedded to absorb 
and sustain a proposed range of technical innovations. In each step of 
this analysis, assessments concerning calculations of appropriateness 


with respect to expansion paths, alternative production technologies and 
absorptive capacities, are made from the perspective of the cost and 
benefits a particular innovation will yield, and the various trade-offs 
available in optimizing some values without at the same time exceeding 
certain levels of specified stress or costs with respect to other 
priority concerns. 

In many instances, assessments of expansion paths and the identifi- 
cation of candidate product designs constitute areas of analytic concern 
which link directly to the problem of selecting appropriate production 
technologies. Thus, new products containing high precision components 
and/or the requisite need for standardized parts will in turn most 
likely necessitate the adoption of production technologies which are 
relatively rigid in their factor requirements. In these instances the 
prospects may be somewhat limited with respect to moderating capital 
costs and expanding the scope for labor substitution. Constraints of 
this kind assume a more prominent role when new and complex product 
designs are in competition with products already imported from abroad 
or under production by capital intensive firms within the indigenous 
modern sector. Requiring and preserving a market position under these 
conditions will place great pressure upon small firms in maintaining 
high levels of quality control and efficiency in order to compete with 
established trade mark brands. 

Assessments concerning the appropriateness of a particular expansion 
path and the choice of certain production processes require some evaluation 
of rural sector social structures and their capacity to absorb and sustain 
a proposed range of modifications in production processes, and similarly 


some anticipatory projections of the secondary and tertiary social and 
economic repercussions likely to be generated by these changes. Studies 
of small and medium scale firms undergoing transition from simple to 
more complex production processes indicate that a wide range of problems 
and obstacles are encountered in adopting new patterns in the organiz- 
ation of work and management practices. It is frequently the case that 
traditional structures of work and authority are not openly responsive 
to changes associated with the introduction of more complex production 
technologies. In trying to anticipate probable sources of elasticity 
and rigidity in the relationships between technology and work organiz- 
ation and a larger set of cultural and social constraints, the primary 
assessment task becomes one of measuring the capacity of the target 
firms and community to support and sustain a proposed range of technology 
innovations and specifying both the acceptable levels of social stress 
and/or probable distortions in organization and production performance. 
Thus, in some instances, certain components of a proposed change in 
production technology might need to be discarded with perhaps some 
concomitant marginal declines in quality control and output, a cost 
judged acceptable however, given the benefits acquired in not having to 
sustain major remodif ications in traditional work patterns. In other 
instances, certain production processes are likely to be more rigid in 
their technical and factor requirements, and consequently less amenable 
to redesign adjustments in achieving greater compatibility with tradi- 
tional structures of authority and work organization. 

Assessment of technology choices needs to include consideration of 
the probable secondary and tertiary costs involved in the adoption of 


new production and organizational processes. In many instances, the 
requisite demands for social change accompanying the introduction of a 
new technology may be quite substantial and pose a high level of risk 
and uncertainty for many of the participants in the target audience. 
In other cases, new forms of work organization involving more structured 
and impersonal types of labor-management relations may have their 
replication and spill over effects in other parts of community life 
as attendant increases in labor mobility and higher levels of group 
conflict serve to undermine traditional patterns of affiliation and 
group solidarity. All of these tensions are magnified when the target 
groups are subject to the destabilizing influences of producing for high 
risk markets. Vulnerability to fluctuations in market demand along 
with likely irregularities in servicing more distant markets (transport 
bottlenecks, tariff impositions, etc.) can exact a heavy price in 
communities where traditional and diversified sources of employment and 
income have largely been supplanted by the performance of small industries 
dependent upon a wide range of decision-making structures far removed 
from their control. In these instances, policy and institutional 
measures designed to sustain and reinforce acceptable measures of 
community resilience and economic diversity may be in order where the 
assessment procedure reveals anticipated high levels of dislocation and 
stress attendant upon the introduction of new work and production processes. 

Once the assessment process has encompassed a set of evaluations 
concerning appropriateness of a projected range of expansion paths, an 
examination of alternative production technologies, a profile of variations 
in absorptive capacities, and anticipated social changes associated with 


the support of a particular technology Innovation, the analysis should 
move to a concern for problems of diffusing and sustaining the innov- 
ations within the target firms and the identification of various 
institutional measures necessary to adequately perform this support 

The first task in this exercise entails the identification of the 
target or candidate firms, a process which includes consideration of such 
criteria as firm potentials for high levels of labor-substitution with 
low concomitant expenditures for new capital investment, firm location in 
proximity to existing infrastructure and market services, and likely 
firm dispersion in areas of high labor or unemployment densities. 
Other variables could be added to these calculations and certain 
assessments would need to be made in terms of the trade-offs associated 
with alternative strategies for firm selection. It is possible for 
example that firms with high potentials for labor substitutability 
would not be located near required infrastructure services, or that 
firms with adequate market centers would not be located in spatial 
areas where policy measures intend to provide the major focus of 
economic assistance. In this latter case, where development targets are 
defined primarily in terms of spatial dimensions (an impoverished province 
or district) or group characteristics (low-income labors), it may be 
that the range and number of existing small and medium scale industries 
will be quite limited, and that major emphasis will have to be placed 
upon the development of new firms. In addition to new firm generation, 
in any of the above cases, compensatory or ancillary measures for such 
investments as infrastructure improvement or higher levels of expenditures 


for capital outlay may have to be accepted as an additional cost factor 
in the attainment of a desired range of development benefits. 

The assessment process for the selection of candidate target firms 
also needs to include consideration of appropriate assistance programs 
to introduce and sustain a proposed range of technical changes. 
Conventional definitions of industrial extension services usually limit 
the scope of services to engineering and management assistance, and 
while these capabilities may be adequate in situations where marginal 
modifications in production processes are in order, where more substantial 
changes are warranted with respect to firm production processes and 
workplace organization, a wider range of social science expertise would 
need to be made available in order to properly assess not only levels of 
managerial and technical elasticity, but more importantly to anticipate 
the range and thresholds of stress patterns under conditions of innovative 
change within the firm structure. The need for these analytical 
capacities is particularly important when the establishment of new 
firms requires some familiarity with social and psychological processes 
tied to the identification and development of new entrepreneurs. 

The task of formulating a generalized development strategy for small 
and medium scale firms is somewhat encumbered by the fact that technical, 
managerial and organizational problems may vary widely from one firm to 
another, requiring that extension programs remain relatively responsive 
to the provision of a wide spectrum of assistance profiles. This flexi- 
bility in the diffusion of services is particularly important in cases 
where knowledge of existing firm structures is relatively limited, and 
where there is some risk that initial firm samples are not sufficiently 


representative of conditions in the field. In these cases, a premature 
effort to design a generalized assistance program may result in the 
provision of inappropriate services and the omission of a more pertinent 
and vitally needed resource package. 

The provision of extension services is only effective when 
complemented by a broader range of policy adjustments. In some instances 
the provision of subsidies or other compensatory measures would be 
warranted in order to reduce perceived risks and encourage new entre- 
preneurial ventures. In other instances, revisions in tariff structures 
and related tax measures may be necessary to generate appropriate 
expansion paths among target firms. Major policy reforms in support of 
small firms are particularly important in dual economies where modern 
sector industry plays a prominent role in shaping basic patterns of 
production and consumption within the larger national economy. Without 
some policy measures designed to reduce the frequently protected and 
privileged role of firms within the modern industrial sector and 
attendant actions to provide greater access and incentives to the more 
traditional small firm sector, the prospects for expanding employment 
would appear limited. 

The assessment of appropriate policy actions and assistance programs 
in support of small firm expansion also requires some consideration of 
diffusion mechanisms and more explicitly an evaluation of alternative 
extension approaches. It is frequently the case that government organized 
industrial extension services will be used as the primary diffusion agent, 
with perhaps some participation from private sector consulting firms. 
Government extension services usually have an already established set of 

branch and network offices in the target areas although these structures 
are frequently understaffed and their personnel poorly trained with 
respect to administering sophisticated extension programs. Thus, some 
form of supplementary assistance from either public or private sources 
is usually required to enhance skill and assessment capacities for the 
extension function. 

Finally, under conditions where the supply of trained extension 
agents is limited, the problem of working with a large number of dispersed 
small firms may require some consideration of alternative extension 
processes in order to achieve a greater focus In the provision of 
engineering and managerial assistance. The establishment of demonstration 
plants and training centers, and the organization of target firms into 
production associations or the creation of other similar institutional 
arrangements may enable extension agents to more effectively transmit 
and sustain innovational changes within the recipient firms. 



The implication of our discussion for R and D is the 
complexity but importance of incorporating active concern for anticipated 
diffusion profiles into the R and D problem identification and project 
selection processes. Incorporation of anticipated diffusion profiles 
can be summarized as 

1. Anticipating likely stresses that would be generated by 
particular products or process designs. 

2. Making explicit the assumptions which constitute or support 
expectations of diffusion and "success." 

3. Anticipating those stresses and/or altered conditions which 
can be expected to accompany diffusion or will be required to 
facilitate diffusion which cannot be adequately confronted through 
modification of the appropriate technology and which will require 

a. specification of acceptable levels of stress and/or 
specification of altered conditions which may be less critical; 

b. specification of time or phasing expected; 

c. some attention to forms and costs of supplemental activities. 

Incorporating Diffusion Profiles into Product Design R&D 

Target groups (usually externally identified) or likely target 

groups (a specification which can be made internally) need to be analyzed 

in terms of 

a. Hardware and software assumptions. This applies ot only to the 
end-user but to those support facilities or capacities critical for 

•27! ) 

equipment maintenance. The major hardware concerns are assumptions 
about inventories of or access to complementary or compatible 
equipment. This would range from fuel and other inputs where 
required to ownership of or access to tools for normal upkeep. 
Software assumptions can be placed in two groups: intra-process 
and extra-process. Intra-process software assumptions refer to 
characteristics of the process only which will be directly affected 
by the product design: 

1. The major intra-process concern is: How interdependent 
are the various steps in the process affected? Where inter- 
dependence is very high, either technologically (output of 
one stage is input of another and the pace of the second is 
dependent on the first) or socially (limited labor allocated 
sequentially), the introduction of any modifications may have 
effects outside of or broader than might be expected from 
simple substitution. 

2. The major extra-process concerns are: How socially and 
culturally embedded is the process? How difficult is it to 
distinguish organization of the process from organization 
of the extended family, village, etc.? Difficulties in 
distinctions will lead to problems of extension entry and 
complicates understanding of production and marketing 

b. Relationships between alternative product designs and the 
organization and range of production technologies. In point a., 

74-665 O - 76 - 19 


hardware support assumptions applied to servicing and backup for 
a product already in the hands of an end-user. In this point, the 
reference is to the hardware and software assumptions attached 
to the production of particular product designs. Fabrication 
assumptions will be derived principally from two common appropriate 
technology criteria: low cost, maximize utilization of indigenous 
resources. The IRRI agricultural engineering shop provides an 
illustration. They have consistently sought to gear their agri- 
cultural equipment designs to the production capacities of firms 
in the countries where diffusion was expected. However, more 
generally, the specification of fabrication capacity can be done 
in a manner that spills over to production process appropriate 
technology (i.e., choose capacities in which fuller utilization 
will be associated with employment generation) or one that seeks 
capacities in terms of output scale and marketing attributes 
(i.e., choose capacities in which fuller utilization may be 
associated with lower cost). Another factor is the extent to 
which the relevant industry is location specific, and what the 
implications of that are for transportation and marketing (in 
other words, the more relevant question may be marketing rather 
than production capacities). A major question is whether the 
production industry is dualistic and if so, whether the distribution 
of management, and marketing skills may either preclude certain 
type firms from viable participation or whether participation would 
have to be subsidized through transfer payments, technical assistance, 
organization of marketing cooperatives, etc. 


c. Assumed inventories of skills. This is true for user and 
producer. For the user, there is the problem of what skills are 
required to effectively utilize equipment and what learning costs 
are implied. This will often not be a source of significant 
stress and/or nonadoption or nonutilization , but is is important to 
address the question explicitly since 

1. This in many ways is a core attribute of appropriate 
technologies, i.e., it does not place unusual stress on 
existing skills. 

2. If relearning is required, then attention will need to 
be given to the organization and costs. Where extension 
facilities are not available in the private sector (e.g., 
agribusiness servicing) or public sector (appropriate 
extension services), then the feasibility of adapting other 
organizations (e.g., schools in rural areas, nonformal 
approaches, etc.) will have to be addressed. This point relates 
back to a. 2. If the end-use process is socially and culturally 
embedded (e.g. , organized around religious values and operated 
as a village activity) then the question of who are the actual 
users, what are existing mechanisms for skill transference, etc., 
may have to be understood to assess the feasibility of 
alternative learning approaches. 

d. Estimation of likely process-skewing effects. The end-use process 
can be skewed or distorted through two broad classes of appropriate 
technology effects. 


1. Reorganization of inputs. For a number of reasons, both 
economic (product designs which break output bottlenecks and 
yield greater marginal return to labor may lead to a reallocation 
of labor inputs) and social (people may want to be associated 
with a new product, to the extent of reallocating time even 

if the marginal returns to increased equipment-time are 
diminishing), the reallocation of labor and time may lead for 
example to increased specialization, to the subcontracting of 
formerly performed operations, etc. The question of whether 
these steps are good or not requires reference to broader 
questions referenced in point e. below but it is important to 
anticipate, weigh and assess likely changes. 

2. Reorganization of outputs. For reasons similar to those 
discussed in d.l., equipment which breaks an input bottleneck 
may le^-d to specialization of outputs. Product focus will be 
good or bad, of course, in relation to broader market factors 
but the point of sections d.l. and d,«2. is that skewing may 
occur and that particularly in somewhat fragile environments, 
skewing may be irreversible immersion into market viscissitudes 
that may prove problematical. This is most true for small- 
scale industrial enterprises but it is potentially true in 
agriculture as well. A portable dryer can encourage HYV 
planting "and input investment on the assumption the product 
will be marketable, but it will probably lead to a broad range 
of labor-substituting input reallocations (technology for labor 


e.g. pest and weed management through chemicals rather than 
hard labor). A hired tractor can facilitate better land 
preparation but it may encourage reduction of multiple cropping 
already practiced, and increased dependence on the market for 
home consumption. 
e. Assessment of the durability of the current policy environment 
and its relationship to user incentives. Assessment of both the 
existing and prospective policy environments is an important element 
of any process of target group identification. It relates to the 
durability of particular problems, bottlenecks, incentives and 
represents a guage against which to assess not simply user costs 
(how long will a particular product design pay) but research and 
development costs (what contribution will a product design make to 
output, income, etc. ) . For example, a paddy rice dryer would be 
considerably less worthwhile if acceptable moisture-content levels 
were raised, if support rice prices increased enough to make even 
penalized moist rice a paying proposition. Another example is the 
current Direct Seeding Program in the Philippines. This is an 
approach to rice planting which seeks to make maximum use of 
average rainfall curves by direct seeding a rice crop before or at 
the start of a rainy season, harvesting in the height of the rainy 
season, and planting a second transplanted crop for harvest in a 
relatively dry period. Dryers will be necessary for the first crop. 
It is easy to imagine a number of plausible scenarios which would 
make the dryer a poor investment. 


1. The investment forces a commitment to a pattern of land 
utilization that may accelerate nutrient depletion; thus 
requiring at the least, significant complementary investment 
in fertilizers. 

2. Removal of adequate support levels, giving additional 
advantage to larger or locationally more well-placed producers, 

To illustrate how these types of questions might be incorporated 
into R&D project selection for product design a form of analysis 
we will call Likely Stress Points (LSP) will be utilized. This 
can be seen as a decision-making aide since the problem at base 
is one of determining needs, assessing possibilities, anticipating 
costs and stresses, evaluating alternative modifications and 
complementary activities, and then deciding that a particular design 
and a particular package of production, marketing, utilization and 
follow-up assumptions are appropriate. Figure 3-1 is an LSP for 
Product Design. The columns are defined by a major dimension of 
product design utilization; — the relation of the product to an 
existing process. Three types of relationships are noted. Variable 
means that the content of the function involved and the function as 
performed with the product is characterized by a broad range of 
empirical possibilities. This would apply in situations where a 
variety of. outputs were being produced and the function involved 
(e.g. packaging) varied accordingly. Uniform means that the content 
of the function does not vary with output. Uniform functions would 
be found where there was specialization and finer divisions of labor. 


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Wi u C C 

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Novel means that the function is not a well-established part of or 
well-integrated into the larger production process. 

The rows are defined by a second dimension, the social embeddedness 
of the process. Two types are noted for discussion, low and high. 
Low embeddedness implies that the organization of the process is 
distinct from the organization of the community. The social effects 
problem will tend to be restricted to within firm people. High 
embeddedness implies that the organization of the process is closely 
intertwined with that of the community. In this situation, alter- 
natives in process can be quickly translated into broader social 
change, which may or may not be problematical. The two dimensions 
form the core relationship. The question then is to assess 

1. the implications of changes in one dimension for what 
may be required of or will be elicited from the other 

2. the linkages between relationship 1. and major diffusion 
profile factors in terms of degrees of change which might 

be stress producing; complementarity and process assumptions 
which may not have been clear, leverage points for intro- 
ducing and multiplying change or for modulating its intensity, etc. 

An Illustration 

Tugaya, a small town in the Southern Philippines is the major brass- 
ware manufacturing site in the country. The process is very labor 
intensive and highly embedded — being a community activity in which decison- 
making, skill transference are closely tied to broader cultural patterns 


of leadership and socialization. A major output bottleneck is wastage 
due to lack of control over temperature in the brass-molding phase of 
the process. With the extension of electricity to Tugaya, 3 proposal 
is being made for several simple electric ovens which could maintain the 
uniform temperatures needed. The present heating method is variable , 
that is, it has wide variation in performance to accommodate a broad 
product mix and because of unpredictable components used in the heating 
process. The suggested product design would make that function uniform . 
Individuals are to be trained to operate these ovens and these individuals 
would be the target of periodic retraining as agents for communication 
of new brassware ideas. 

The shift from variability to uniformity is a case of specialization 
that, in a highly embedded activity, will make unnecessary skills 
developed over time to predict and cope with variability. If that 
coping skill is relatively high in the apprenticeship and cultural scales 
of the community, what are the possibilities for non-acceptance unless 
a short-term approach to minimizing this obsolescence is developed? The 
attempt to select a set of individuals to operate the new ovens and to 
subsequently utilize them as extension contacts assumes a relatively 
low degree of embeddedness, i.e., these individuals can operate external 
relationships without jeopardizing internal ones. But if task roles and 
skill transference are closely linked to the distribution of authority 
and prestige, is it feasible to assume that individuals selected externally 
can function as desired or that individuals selected internally will be 
chosen on the basis of relevant criteria? A compromise is to expand the 
training to operate through the apprenticeship hierarchy; and to devote 


additional emphasis to a variability area that has not been well developed: 

This is a simple example, but it serves two purposes. First, it 
suggests the sequence of questions that need to be asked and relates 
those to a core relationship — in this instance the effect of a change 
in the relationship on certain other factors. Second, it provides 
further evidence of the multidisciplinary character of the appropriate 
technology problem. 

Incorporating Diffusion Profiles into R&D for Production Process 

Incorporation of a diffusion profile in this category of appropriate 
technology R and D is characterized by many of the same questions which 
pertained to product design — particularly a,c,d,e, and f. However, there 
are additional questions which derive from the direct reorganizing thrusts 
of appropriate technology for production process and from the predom- 
inant thrust to generate employment without losing market position; a 
different trade-off than that faced by appropriate technology for product 
design (increasing output capacity without incurring high fixed costs). 
Three major additional questions need to be addressed: 

1. What are the optimal possibilities for labor expansion in 
sociotechnical terms? Economic analyses of the possibilities for 
labor substitution are couched in a form of analysis that is 
basically output-(and hence, returns) related. But the capital-labor 
substitutability research and the microeconomic recommendations 
which come from it need to be enriched through integration with 
sociotechnical "tracer" analysis. The latter examines the social 


organization of particular technical processes with special emphasis 
on the interrelationship of production indivisibilities and inter- 
dependencies with control and management attributes. The combination 
of C/L analysis and tracer analysis would offer considerable potential 
for assessing the management feasibilities of alternative C/L 
paths and it would provide insight on the process distortions which 
may result from labor-capital substitutions at particular points. 
For example, C/L analysis which suggests that some capital stretching 
strategy such as shifts would expand employment, need to be assessed 
in terms of the coordinative requirements demanded by shift labor. 

2. What are the interrelationships between firm and community, 

— particularly in terms of labor pools, labor recruitment, and skill 
transference? Expanded demand, particularly for any special set 
of skills can place stress on existing f irm-comnunity linkages, 
the feasibility and costs of going beyond existing labor markets 
can be very high — in economic terms (cost of developing new 
recruitment mechanisms), in technical terms (the problem of finding 
or developing skills required and the intermediate costs in terms 
of output quality, market deadlines, etc.) and in social terms (in 
terms of residential and occupational migrants as outsiders and the 
broader alienation costs vis-a-vis the community). 

3. What are the interrelationships between the possibilities and 
problems in altering production processes and characteristics of the 
industry and region. The linkage to industry has been widely 
recognized and while in policy terms small or medium enterprises 
may be the focus of appropriate technologies, in more operational 


terms, the question reduces to small or medium firms in industries 
presumed to have special labor elasticities and growth possibilities. 
The significance of dualism, a structural feature of many industries 
in developing countries, usually requires interpretation in light 
of the production functions which characterize a particular industry. 

The role of regional structure has been recognized much less often, 
even though one of the more popular books in the appropriate technology 
field, Schumacher's Small is Beautiful devotes considerable attention to 
it. The viability of existing workplaces and the possibility for their 
expansion or dispersion can be related to several dimensions of regional 

a. The distribution of intermediate market centers . This factor 
is particularly true in rural areas. It suggests that for both 
efficient collection of inputs and viable marketing of outputs, 
growth possibilities will require certain minimal externalities 
and that externalities tend to be found in the collection of 
functions present in intermediate centers. 

b. The linkages between regional settlements . Settlement size, in 
terms of functional diversity and for some products, in terms of 
market size, is only one dimension. A related but distinct dimension 
is the set of linkages which tie settlements into systems. These 
systems can be arrayed hierarchically as functional diversity is 
related to linkage diversity. The idealized pattern has been a 
neat ordering of overlapping service areas. But in most areas of 
the third world, this pattern is not found. Instead patterns which 


reflect administrative and colonial demands are found and these 
place several stresses on the range of choices present In desig- 
nating certain industries and classes of firms within those 
industries as suitable growth prospects through appropriate 
technology. Three patterns can be identified which yield special 

1. The Primate City . The concentration of a nation's 
industrial, service and financial resources in a single 
major urban center is perhaps the most common and most serious 
problem pattern. While externalities are certainly present, 
they take the form of critical diseconomies. First of all, 
there may be too small a market to support the large number 

of sellers. Second, the possibilities for individual firm 
expansion through more labor-intensive production must be weighed 
against the social costs of strengthening any "pull" factors 
for rural-urban migration. Third, as the term primate implies, 
urban infrastructure may be so weakly developed outside the 
major center that the costs of reaching that market do not provide 
an effective alternative to the primate city domestic market, — a 
factor that strengthens primacy and leads to distortions in 
economic growth strategies as recent ILO missions have indicated. 

2. The Extractive City . For many developing societies, the 
principal mechanism for participation in international trade is 
the export of unprocessed or partly processed local natural 
resources. The settlement pattern that typically accompanies 
this is one characterized by a port city connected to dispersed 


smaller settlements . The system is organized to facilitate 
movement out rather than between and it is this factor which 
places limits on growth possibilities. The effective market for 
any of the dispersed collection points will be quite small. 
The port town will have limited production externalities, 
principally because it is mainly a transfer point. Most goods 
are imported and most functions will be service oriented. The 
real economic base of such a region is highly delicate. A 
crop disease, a fall in world prices, demand for the crop, a 
rise in shipping costs, — any of these factors can virtually 
put the region "out of business." 

3. The Administrative Town . This is a pattern which makes 
sense as an approach to revenue collection, maintaining peace 
and order and other administrative objectives. Centers are 
developed to transmit higher level desires down and taxes up. 
They do not have significant local or indigenous functions and 
thus are not able to serve as effective catalyzers of economic 
relationships. While that does not preclude such relationships 
from developing, it can make the growth possibilities very 
limited by making access to distantly located administrative 
resources a critical necessity. For example, if credit alloc- 
ation decisions and policies are made in Bangkok, what are the 
implications for small enterprise entrepreneurs in the Northeast 
who seek assistance in developing markets and hiring more people. 

A significant dimension of these three patterns is that they all tend 
to deflect extension attention away from rural areas and from non-administrative 


centers. Much of the recent discussion on labor migration (Todaro) , for 
example, suggests that the probability of finding employment in an 
urban center relative to an origin area is a major factor in migration 
decisions. If that is so, then it follows from the high unemployment 
characteristic of cities that the major long-term growth possibilities 
and short-term need are outside the big city, the extractive port, and 
the administrative center. But, the patterns described brief ly require 
that careful assessment be made of the assumptions defining target group 
selection in terms of short and long run costs, competition and 
complementary investments needed. 

Figure 3-2 is a Likely Stress Points (LSP) diagram for incorporating 
diffusion profile concerns into Production Process R and D. The columns 
are defined in terms of the degree to which production must yield standardize 
output (borrowed from Woodward). Unit production will be outputs that 
are made to specification, made to order. The variability and often 
low volume for any single order, makes even simple forms of capital 
stretching, i.e., jigs and fixtures, uneconomical. Batch production is 
also production to varied specification, but the volume is sufficient 
to permit, to differing degrees, the devotion of certain equipment to 
the same function for long enough periods and large enough outputs to 
provide opportunities for a variety of capital stretching and labor 
absorbing strategies (jigs and fixtures, shifts). Continuous production 
in addition to representing continual production of the same outputs, 
— thus encouraging significant capital investments, — is also characterized 
by a concomitant development: a high level of task decomposition for the 
application of capital investment that significantly increases the complexity 



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and Interdependence attributes of the process. The rows are defined by 
the control systems characteristic of work places. Two types are noted. 
Personallstlc control is a highly flexible form of control, adapted to 
varied outputs and to supervising not simply job performance, but skill 
transference. While such control systems may be highly centralized or 
decentralized, effective control tends to be fragmented across actual 
work-groups. It is the work-groups which allocate labor and define the 
overall task sequencing. Mechanical control is a form of control 
best suited to coordinate complex and highly specialized inputs into 
optimal patterns for output production. Control cannot be fragmented 
because particular stages are dependent on other stages. 

These two dimensions form the core sociotechnical system relationship. 
The LSP proceeds through analysis of that system and its interrelation- 
ships to the diffusion profile factors discussed earlier. 

An Illustration 

The construction of wooden ships in eastern Indonesia is a process 
that has gone on unchanged for many generations. A group of artisans, 
organized in relation to a 20 year apprenticeship, contract themselves 
to an entrepreneur who has found a buyer and the raw materials. It is a 
system in which seasonal unemployment is high and in which supply lags 
behind demand; — the latter condition weakening the wood shipbuilding 
industry as a whole. The system is a unit process with highly personalistic 

With expansion of demand for sailing ships and with the possibility 
for motorizing the ships to give them supplemental power, there are growth 

74-663 O - 76 

possibilities that are constrained by two factors: 1) the present 
contracting system which leaves workers unemployed and 2) the skill 
transference process which is premised on the construction of one boat 
design only. To confront these problems, i.e., to meet demand and 
increase employment, the following proposals have been made: 

1. Create a "shipyard" to which buyers would come rather than the 
complex system which currently links buyers and entrepreneurs. 

2. Convert the organization of production from apprentice-focused 
work group — each capable of building a boat — to specialization 
focused work groups, — each capable of producing a particular 
boat part. Instead of the same group producing a boat from 

log to finished product, each boat would be worked on by different 
groups at different times. Specialization, in turn, would facil- 
itate the introduction of appropriate technologies for wood curing, 
more precision in cutting, etc. 

3. The control function would shift from apprentice-based to 
coordination derived from plans. The plans would represent the 
range of "models" possible with the components available. 

These changes represent a number of assumptions about factors which 
would not be stress-producing; — assumptions which would need testing: 

1. The creation of a stationary labor force will not displace the 
current mobile labor force. 

2. The reduced need for long apprenticeship will not displace the 
current highly skilled labor force. 


3. The Increase in specialization will not stretch existing 
managerial capabilities and will not suffer from the absence of a 
process to replace existing master craftsmen. 

4. The assumed expanding market will not be saturated or reduced 
by competition with other forms of ships and thus replace seasonal 
unemployment with no employment. 

These assumptions do not include the problems of introducing change 
to begin with. The recommendation is to work through the entrepreneurs. 
However, since the entrepreneurs have only an indirect connection with 
actual production, that recommendation amounts to an usurpation of 
craftsmen functions by entrepreneurs or the training of new people entirely. 

The reorganization is justified in order to meet a demand for a 
flexible product, to support an expanded demand for ships, and to facil- 
itate the introduction of managerial process adjustments to improve 
product equality and precision and the addition of a motor to ship 
design. A number of trade off strategies could be explored to reduce 
the potential social dislocations and, it might be added, the unpre- 
dictable direction of change in ship quality and competitiveness. 

1. A configuration for the addition of engine power could be 
explored which had narrower ramifications on overall ship design 
and construction. 

2. A shipyard could be formed without sacrificing the existing 
work-group organization. The grounds for this tradeoff would be to 
alter labor recruitment rather than skill acquisition processes, 
limiting specialization to new functions (motor installation), and 


seeking to incorporate improvements of existing functions into 
existing work organization (wood curing, rib measuring, etc.). 
3. To prepare for a time when specialization would be unavoidable, 
a consolidated shipyard might be encouraged to take on other 
construction-related jobs. 

R and D Functions Summarized 

What should be clear by this time is that the problem of appropriate 
technology is highly multidisciplinary . The relative importance of 
particular questions will vary from case to case, but because we do not 
believe that it is possible to develop a small fixed set of questions to 
fit all situations, we conclude that a large number of questions must be 
held in readiness. The decision which questions to ask is the critical 
R and D function and while as will be explored below there are orgaiz- 
ational answers to structuring proper question raising, there is no 
substitute for what those organizational alternatives seek to accomplish: 
the presence of a variety of viewpoints focused on defining and dealing 
with a particular problem. 

There are three additional factors. First, R and D must be sensitized 
by an active link to relevant policy agencies and processes. In a policy 
environment unfavorable to subsidizing labor expansion, certain target 
groups may simply not be reached through technological inputs alone. In 
a policy environment encouraging survival of small-scale enterprises or 
rural industrialization, the feasibility of certain product design and 
production process appropriate technologies increases dramatically. Second, 
R and D must be sensitized by an active link to varying elements in the 


relevant private sector. This is a delicate matter because in welfare 
terms, some elements may lose through broader industry reorganizations 
implied by some appropriate technologies, but it is also the case that 
in most situations the target group itself, if not the success of the 
target group, will come to rest on the private sector. Third, R and D 
needs exposure to unmediated feedback, on its problem perceptions and 
alternative solutions and that implies some type of extension function. 



AID can nove in either or both of two broad directions. First, 
an emphasis can be placed on the short-run goals of enhancing the 
capabilities of indigenous institutions to work on appropriate tech- 
nologies. Second, an emphasis can be placed on developing a multi- 
disciplinary capacity independent of or in conjunction with the assets 
and liabilities of particular institutions. 

The Short-Run: Enhancing Institutional Capabilities 
Two approaches can be identified at the outset: 

1. Arrangements can be developed to facilitate the distribution 
of goods produced in the U.S. This may have the advantage of 
leapfrogging certain R and D time, but it may necessitate even 
more R and D time to deal with the inappropriateness of such 

2. An alternative would be encourage the development of adaptive 
research capabilities to reduce the inappropriateness of imported 
technologies. If that goal is complemented by some interest in 
developing or enhancing an indigenous capability to do adaptive 
research, various forms of technical assistance can be productive 
(e.g., Georgia Tech SSI work). This approach has a broad consti- 
tuency in developing countries and capacities for adaptive research 
already ertist or are being developed in a number of places. A 
variant of this approach that has considerable potential is the 
development of intermediate technology information networks, linking 
research institutes, universities and in some instance the private 
sectors in several countries (e.g. Technonet). 


Given our own argument, alternative 1. would rarely seem appropriate 
unless the technologies were selected by and were the result of a thorough 
process of feasibility and assessment research. Alternative 2. is a 
reasonable strategy provided that its' most severe limitation can be 
overcome. It does not lend itself to the development of sustainable 
capabilities. This is because the needs for recognition of the benefits 
of this style of indigenous problem solving may not be well developed given 
the demonstration effect of used or obsolete Western technologies and 
because the resources typically provided by external assistance for 
institutional or program start-up are not complemented by local contri- 
butions and goal-setting early enough to enhance possibilities for local 
assumption of comparable responsibilites upon the termination of 
assistance. The latter point is quite complex because the performance 
criteria often used by external assistance organizations place greater 
emphasis on immediate input-output accounting and less on growing local 
capabilities which may not be reflected in immediate or high level 
output accomplishments. 

However, alternative 2. can be improved by raising the questions: 
What are the advantages and diadvantages of varying types of institutions 
and what are their major needs to make them appropriate institutions? 
Table 4-1 suggests in outline form an answer to these two questions. 
There are two ways to summarize this table. The first is a distinction 
between diversifying the capabilities of institutions already working on 
appropriate technology questions and diversifying the functions of insti- 
tutions with capabilities that fit appropriate technology questions but 
not currently being applied in that manner. Universities and private 





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industry in developing countries may be examples of the second. Research 
Institutes, Extension Agencies and Management Institutes may be illustra- 
tions of the first. A second form of summarization is to draw a distinction 
between effective approaches to a particular problem and developing 
capacities to engage a broad range of problems. Universities, extension 
agencies and private industry probably have the best potential for the 
second; research institutions and management institutions problably have 
the best potential for the first. 

With these questions and distinctions in mind, a more effective 
allocation of technical assistance and other AID inputs becomes 
discernable. The category "Other AID Inputs" can be summarized as 
efforts to link existing capabilities in common efforts. This could 
involve programs ranging from support for the establishment of consortia 
(a relatively loose confederation of diverse institutions to work on a 
broad range of problems related to appropriate technologies) and task 
forces (the organization of several institutions into functional groups, 
with each group tackling a major component of the same appropriate 
technology problem) under the aegis of some key institutions to the 
consolidation of existing capabilities into some new institution. The 
major challenge for activities in the institution- building approach is 
to enhance indigenous problem-solving capabilities and to sustain those 
capabilities once developed. This may require the incorporation of 
representatives of common target groups into R and D planning, a step that 
will invite the kind of accountability necessary to ensure institutions 
stay on their toes. A major challenge for AID will be to avoid account- 
ability for itself strictly in terms of the distribution of intermediate 


technology hardware or even chc creation of jobs through such hardware, 
but rather to become accountable In terms of contributing to the development 
of institutions that can weave together diverse capabilities in a focused 
fashion and continue to do that after AID leaves in a manner that defines 
a problem indigenously, i.e., it sees the problem from the point of view 
of the user and immediate benefactor aware Chat it is the social good 
which needs maximization and sees the problem from the point of view of 
tho. c e directly and indirectly affected aware that acceptance requires 
maximization of private goods. 

The Long-Run: Enhancing Indigenous Problem-Solving Through Expanding 
Disciplinary Boundaries 

This is a long-run objective, but it can be met through short- and 
long-run activities. The basic objective is to support the establish- 
ment of a field which might be called development technology . One 
pillar of the field would be basic technological and engineering skills. 
But several other pillars would together be given equal weight: the 
individual, the individual and work organization; work organization and 
the region; the individual, work organization and the region. A four- 
year sequence is presented for illustration in Table 4-2. Students each 
year would be involved in a problem seminar on appropriate technology 
which would progress from exercises involving uses of Intermediate 
technologies and inventorying existing technologies to progressively 
more complex problem-solving. For undergraduates and/or for a graduate 
version of the same curriculum provision could be made for specialization 
in terms of: 


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— R and D management (problem Identification, screening 
alternative solutions) 

— Appropriate technology extension and evaluation 

— Agricultural or industrial focus (with greater degree of 
specialization possible also) 

— Urban or rural development. 

The same profile of curriculum inputs could be decomposed or recombined 
into modular training packages ranging from several months to a year each. 
With appropriate types of follow-up, this latter option could be fruit- 
fully combined with alternative 2. in short-run objectives and serve as 
a "shakedown" for broader degree applications. Modules and curriculum 
should be implemented on a regional basis to ensure a reasonable degree 
of initial relevance and where possible on a national basis to increase 
possibilities for linkages to the policy and private sectors. An example 
of this latter course would be the establishment of regional centers for 
graduate education in development technology. The centers would be 
located at universities with the potential for meeting regional as well 
as national needs. 

A Role for AID Summarized 

Optimally, both the short- and long-run objectives need to be 
addressed. A way of conceptualizing a program which sought to do this 
is presented in Table 4-3 and Figure 4-1. The key words of this conceptu- 
alization are feasibility, institutionalization and continuity. Whatever 
is to be done must be feasible — for AID and for the institutions with 
which AID would work. The critical capacities which we have already 





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discussed require two characteristics before any significant change in 
appropriate technology activity can be expected. One is the need to 
institutionalize capacities, to locate critical masses of capabilities 
in places where the likelihood of impact is highest. The second is the 
need to create and/or enhance the professional infrastructure which will 
guide the long-range course of this type of work and thus ensure that 
the learning process is a) cumulative and b) not restricted to individual 
experiences within a few institutions. In other words, it is the 
professional infrastructure which will provide continuity . 

AID can begin with selected feasibility activities to demonstrate the 
possibilities of organizing for and programming around multidisciplinary 
approaches to technological R and D. AID can then embark on a carefully 
designed program to strengthen selected national institutions and 
prepare them for the assumption of regional roles as the professional 
manpower for regional institutions is created through non-degree 
trailing of junior and middle-level staff. 



Most discussions of appropriate technology are cast in terms of 
economic and engineering decision-making. The question of social 
effects is always present but rarely given sustained attention. We 
have no quarrel with attention to economic and engineering decision- 
making, — only an objection to the tendency to disembody the decision- 
makers from the social milieu in which decisions are made or to pursue 
adequately the linkages between choices, decisions and social milieu. 
Those objections might be peripheral were it not for the social and 
cultural situations into which appropriate technologies are to be 
insinuated. In these situations , the category social effects is not even 
the whole story because what roles technologies will actually have and 
how they will actually be utilized will be an "effect" of local 
social and cultural organization. 

We have tried to strike a middle but feasible ground between the 
biases of the existing mainstream and the biases of a more system-oriented 
view. We do not deny that change is often disruptive nor do we suggest 
that it be avoided because of that. Instead, we have tried to make three 

1. The decision-problem in appropriate technology is not how to 
satisfy lists of eloquent and often inconsistent criteria of 
what appropriate technologies are or ought to be. The decision 
problem is a trade-off problem in which hard judgments need to be 
made about costs and benefits, impacts and opportunities. 

2. In making those kinds of decisions, it is first necessary to 
anticipate as best as possible what the terms of trade-offs will 


be and having made those decisions, it is even more important to 
continue assessing the terms of the trade-offs. One way to do 
all this without sacrificing change is to compare intervention and 
explication strategies. The former seeks to minimize social 
effects, the latter tries to utilize them. 

3. External assistance can make a short-range contribution by 
providing the materials to enter a diffusion stream. The role 
of assistance is then defined in relation to alternative forms of 
initiating and maintaining a diffusion stream. External assistance 
can make a long-range contribution by going to the heart of the 
problem — it is currently one defined by multidisciplinary fields — 
and seeking to create an integrated professional community which 
can develop and maintain perspectives and standards, cumulate, 
evaluate and transmit experience. The role of assistance is then 
defined in relation to wedding alternative substantive strands. 



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International Labour Office. "Sharing in Development: A Program of 

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Time-Phasing." Cambridge, Massachusetts, The MIT Press. 
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International Labour Review, Vol.101, No. 5 (May 1970). 


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Paris: OECD. 1974 
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Through Collective Actions , Inter-Regional Symposium on the Exchange 

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Asia , edited by Kenneth Berrill, London: MacMillan and Co. Ltd. 
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Asian Growth," in Economic Development and Cultural Change , Volume 19, 

Number 2, January 1971. 
Pratten, C.F., Economies of Scale in Manufacturing Industry . London: 

Cambridge University Press. 1971. 
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In Developing Nations , Edgar Edwards (Editor), New York: Columbia 

University Press. 
Strassman, W. Paul, Technological Change and Economic Development . 

Ithaca, New York, Cornell University Press. 
Timmer C. Peter, "The Choice of Technology in Developing Countries: 

Some Cautionary Tales." Cambridge, Massachusetts: Harvard Studies 

in International Affairs, No. 32. 1975. 
Trist, E.L. and Bamforth, K.W., "Some Social and Psychological Consequences 

of the Longwa-1 Method of Coal-Getting." Human Relations (1951). 
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Application of Science and Technology to the Development of Asia, 

New Delhi, 1968. 

Woodward, S., Industrial Organization: Theory and Practice . London, 
Oxford University Press. 


Extracts From Papers on Appropriate Technology 


i By Clark Edwards, Economic Research Service. U.S. Department of Agriculture i 

* * * * * • * 


Aii objective of economic development in less developed countries (LDC's > is to 

increase agricultural output as a means toward improving the availability of 
food and at the same time toward generating a surplus which can be used to 
foster further economic growth. There is concern both with the efficiency of pro- 
ducing and with the equity of distributing food and income. Intermediate agri- 
cultural technologies, which are efficient and also appropriate to social, religious, 
political and economic conditions, are preferred to high technologies. The latter 
may appear to drive faster and harder toward efficiency goals, but appearances 
sometimes deceive. High technology rends to increase the income distributional 
problems between the "haves" and "have-nots." 

Even appropriate technology, taken as a single means toward a single end. can 
have side effects. Two mechanisms through which these effects are transmitted 
are: forward and backward linkages from the advancing agricultural sector to 
the nonfarm sector: and changing opportunity costs fur resources, parricularly 
for unskilled labor. To the extent that such unintended side effects are also un- 
desirable, a successful program to introduce appropriate agricultural technology 
to LDC*s needs to be accompanied by companion strategies to maintain balanced 
growth. The companion strategies serve to increase the availability of local re- 
sources, expand markets for local products, ensure equitable regional distribution 
of economic gains, and build appropriate institutions. 

Unskilled labor is the r(x<,urc< most likely to be in abundance and underused. 
Some i>olicies emphasize birth control or migration strategies to deal with the 
labor surplus. The latter tends to be more a way to transfer the problem from 
one region to another than to solve it. Education programs which raise the skill 
levels of these workers and enable them to join a relatively skilled labor force. 
appear to show more promise. Policies to introduce large inputs of capital from 
abroad tend to accompany inducements for malappropriate technologies and in- 
stitutional arrangements: emphasis at first should be on finding appropriate op- 
portunities for small increments «-f local capital accumulated from the increasing 
agricultural surplus. Natural resource development policies may emphasize de- 
velopment of indigenous materials, including minerals, timber, and water, for 
use in both farm and nonagricultural industries. 

Technological advance must be appropriate for nonfarm economic activity as 
well as on the farm. This includes finding ways for processing and distributing 
farm products, manufacturing and marketing purchased farm inputs, and village 
and urban nonagricultural industry development needed to create jobs and in- 
crease the productivity of unskilled labor. Introduction of appropriate technology 
requires education in the form of on-the-job training for workers and also in the 
form of technical assistance for entrepreneurs. The burden for conducting re- 
search and disseminating new ideas may. in the beginning, depend on nonlocal 
people, but implementation and further developments of appropriate technology 
over time should become endogenous. 

Market expansion should concentrate on local village markets first. Derived 
demand for jobs for unemployed village residents dej.>ends on building the eco- 


uomic base of The tillage eommnnity. The quality of life of Those residents de- 
pends on their opportunities to consume what they produce. Domestic orban 

markets should receive attention second, and expanding markets for exjKirts 
third. Value added domestically is preferred to exports of raw materials. Import 
substitution and domestic value added to imports of raw materials add to de- 
rived demands for domestic resources. 

Regional emphasis should begin with development of a rural, nonfarm econ- 
omy in the agricultural village and small town. At first, the local economy may 
l>e linked to the agricultural base, but over time aonagrienltnral industries need 
To be developed To sustain regional growth. Explicit policies need to be imple- 
mented to develop transportation and communication channels among villages 
and small towns and between these and the larger urban centers. Policies need 
to address equitable regional dispersion of economic development over the en- 
tire nation and need to be concerned with maintaining a rural-urban balance. 

Institution building may emphasize economic institutions, including those 
which create markets for goods and services as well as money markets and those 
which establish goals and plans for economic development. But these must be 
accompanied by concern for building social, religious, and political institutions 
as well, which are organized to assess goals, resolve conflicts, and deal with 

'By John S. Balis. NE TECH. AID i 

* * * * * * 


An appropriate agricultural machinery technology should include three major 
categories of hardware with a diversity of options in each category. The major 
-• ries are hand tools, unproved animal tools and small tractors. The design 
options would adapt the equipment for the diversity of farming operations of 
The LDCs. This equipment would be designed, produced, distributed and serv- 
iced for the family farm enterprises of the LDC and should achieve measurable 
-Jits in terms of both production and employment. Although it is 
possible to make a narrow economic and technical case for larger tractors as 
appropriate technology this case is weakened by the consideration of thi 
political impacts of the large tractor technology. The problems experienced by 
LDCs in land reform has been taken as indication that adequate political will 
does not exist to restructure drastically the pattern of farming enterprises. Thus 
The appropriate technology should be designed to raise the prr»ductivity with the 
broadest segment of smaller farmers using a technology that is heavily depend- 
labor. This strategy contains a trade-off of production and employment 
factors and : judgment that at this staee is not well supported with 

field data. Some caution and continuous evaluation -. ted during the pur- 

suit of the strategy to ensure that the benefits do in actuality conform to the 
exi»ectations in an acceptable degree. 

Family Farm ax the Target Group. — The family farm enterprises of the LDC. 
like their U.S. counterpart are the most efficient users of available land. This 
strategy would provide these farmers with the tools and equipment to further 
raise production and the well-being of the farm family and their society. These 
farmers are not well off economically, in fact generally significantly poorer than 
the urban labor class. In past development programs there has been a preoccu- 
pation with production for the commercial market which resulted in the neglect 
of the family farm. More recently the emphasis on the "rural poor" focused upon 
the landless and therefore also neglected the family farm group. The family farm 
merits attention because it is a poor group with production potential. The family 
farm is not a narrow typology and the strategy has the flexibility to supj>ort the 
full gamut of mechanical technology required to develop the potential of this 

- ent of the LDC economy. 

.4 Positive Social Impart. — An increase in total food supply and an increase in 
^ncome of a sizeable segment of the farm population will have broad social bene- 

*Dipeuspion Paper Prepared for Appropriate Technology Committee of AID/W Staff, 
une 1976. 


(its. This strategy attempts to Improve equity by positively excluding a sizeable 
segmenl ;it the top end of the economic spectrum. However the available produc- 
tion parameters Indicate thai there are limits on the labor absorptive capacity 
of a production increasing technology and it is not proposed that this technology 
will correct all social ills although there is expected to be a net gain in well-being. 
Productivity Benefits.- This technology will not produce maximum production 
per unit of input as this is only one of the benefits sought from the intervention. 
However the internal motivation of the family farm enterprise is comparatively 
high, perhaps higher than can he attributed to economic factors alone. Thus, the 
return for improving the production technology is multiplied by the factor of good 
management. A large portion of the production will he consumed by the farmer 
and by his labor force thus making measurement difficult. At the same time a 
lack of fertilizer, for example, may in fact limit production more seriously than 
will be assisted by the better tools. Realistically it is the combination of better 
farming methods rather than any one that produce crop yields and it will be 
necessary to expand all of the inputs in some coordinated manner in achieving 
the productivity gain. 

Broad Based Economic Impact. — The industrial facilities for producing, dis- 
tributing, servicing and repairing of this appropriate technology can he wholly 
indigenous or nearly so. This broadens the economic benefit in the society and 
also conforms with fiscal management objectives of many LDC's. The simplicity 
of the technology and its capability for immediate utilization can make if an 
attractive investment for local entrepreneurs. It is generally felt that previous 
emphasis on sophisticated technology was too lumpy to stimulate wide interest 
and hence resources were accumulating or being consumed unproductively. The 
proposed technology offers the opportunity to test that hypothesis. The caveates 
must be hastily added. There is an extensive set of policy and administrative 
adjustments that must be simultaneously instituted if the full benefits of this 
technology are to be realized. 

Broad-Based Political Impact. — The objective is to provide a modest positive 
economic and/or social benefit to a broad segment of the population. The target 
group of farm families are minimally involved, or at the immediate fringes of, 
the present political processes. Strengthening of their economic status, notably 
their relative economic status, is expected to improve their political capability. 
At the same time there is no threat of a political revolution, nor is it necessary 
as a precondition for utilizing the technology. Thus the participating political 
base should broaden as the impacts of the technology are felt. This broadening 
will not simply be in numbers of farmers, but in numbers of industrial or urban 
participants as well. Some may be concerned as the political interests of agricul- 
ture are strengthened and begin to reshape the agro-industries. Vet the agro- 
industries interests may themselves become the political bridge that links the 
existing conservative rural majority and the sometimes hyper-modern urban 
industrial class. 

Compatible With Existing Technology. — The appropriate technology concept 
readily assimilates existing traditional and modern technologies. It is not pro- 
posed to replace any existing technology with a technology proposed to be "right". 
It is proposed that existing technology will be supplemental and complemented 
in the course of improvement. Displacement will occur in the context of evolu- 
tionary improvement as resources are mobilized. The establishment of the new 
technologies will improve the productivity of the existing technologies by common 
reliance on the same infrastructure and other features of the economy and social 

I'd/Hires Minimal Facilitating Programs. — The LDC's have made significant 
gains in fertilizer, irrigation, etc. for IIYY agriculture and in industry and infra- 
structure of a modern economy. These are the essential building blocks of the 
new technology. These blocks need to be expanded and perhaps uglified to permit 
continued agricultural expansion, but drastic modifications are not required. 
There may be major problems in expanding these various elements, but the expan- 
sion of the agricultural economy should be a major resource enabling more rapid 

The crucial factor is to perceive the influential nature of a set of interlinked 
policy and administrative policies focused at the family farm as a dynamic eco- 
nomic enterprise. The family farm has the capability of a high multiplier effect 
in utilizing development resources to yield both a production 1 increase and an 
improvement in social well being. Policy reformulation and some restructuring of 


the administrative set-up are necessary to achieve the target objective <>f the 
family enterprise. However the more important benefit will be the economic stim- 
ulation and reinvestment of resources when the family farmer reinvests in his 
enterprise and expands the productive capability. The industrial response to the 
farmers demand for capital goods becomes an integral element of the expansion 
of the total economy. Much of this expansion can be underwritten by farmers and 
rural businessmen as they recognize the potential returns of this kind of dynamic 
new business enterprise. An appropriate agriculture technology thus becomes an 
effective engine of economic and social development. 


Extract From "The Inducement of U.S. Firms To Adapt Products 
vni) Processes To Meet Conditions in Less- Developed Countries" l 


i. Product Adaptation 

Most of the products (except for the traditional ones) that one finds today in 
developing countries originated in developed countries, and underwent little 
change as manufacture eventually started in the developing countries. Most of 
these products manufactured locally are considered •■mature" according to the 
product life cycle sequence. For example, one might rind in a developing country 
.1 substantia] market for non-leakproof batteries and inexpensive motor scooters, 
two products winch have been declining in consumption in the U.S. and in 
Europe. Typically, such products are manufactured either by locally-owned 
companies or i>y investment from other developing countries. U.S. investors 
typically do not compete primarily on the basis of price but on the basis of 
product quality and brand names, so products manufactured by U.S. subsidiaries 
, tend hi be comparable with similar products manufactured in the developed 
countries or in developing countries by non-U.S. based multinational enter- 
prises. The local consumer is very conscious of ••Western*' quality standards 
through imported goods, so that products manufactured locally for the same 
market have little scope for extensive product adaptation. 

The examples of product design by U.S. investors to tit low income markets 
arc few. An oft cited case is the development of special low cost automobiles for 
developing countries | )V Ford and General Motors — the so-called people's car. 
Although Ford and General Motors both are producing and marketing in devel- 
oping countries a low-cost vehicle capable of different [>assenger/eargn configu- 
rations, the long-run competitive outlook for these vehicles vis-a-vis Italian or 
Japanese cars is still not clear. For example, would a car designed specifically 
for the varied road conditions found in Brazil compete successfully with the 
locally built Fiat 1 liT. of which more than one million units have already been 
manufactured in Italy 7 

Product innovation by multinational enterprises in the development of new 

( foods of a high nutrition content for developing countries lias been less than 

■ successful. Often these foods tend to be more expensive than the nutritionally less 

\ valuable staple foods they are meant to replace. Also, the marketing of new foods 

has proven difficult in poor countries, where the products were not accepted by 

the population segment that needed them most. Furthermore, multinational 

companies concentrate their efforts on foods for the higher income end of the 

market because of the scarce profitability in producing for the lowest income 

levels. In this case an argument can be made for government subsidies to make 

the manufacture of such low-income, high-nutrition foods profitable. 

Clearly the problem of product adaptation requires more investigation. Studies 
should focus on how much product adaptation is done through corporate research 
and development efforts of large multinational firms, and how much product 
development is done at the level of the host country. Also, studies are needed 
on the dissemination of new low income product technology from design centers 
in developed countries to developing countries. The development of simplified. 
but modern products, specifically designed for low income markets might prove 
,i very fruitful ground for small engineering firms. However, the development 

'A report to Agency for International Development hy Management Analysis Center. 
Inc.. under the direction of Robert r.. Stobaugh. Professor of Business Administration. 
1 larva nl Business School, .tunc S, 107fi. 



of such products by large multinational enterprises seems much less likely, for 
these firms are more interested in concentrating on developing new products 
for high-income markets. 

H. Process Adaptation 

We suggested earlier that adapting to a more lahor intensive manufacturing 
process in developing countries often is more appropriate than simply transfer- 
ring capital intensive technology (adjusted for .scale) from developed nations. 
However, at this stage of our knowledge of the problem, it would be wise not 
to make generalizations, but to approach each investment decision on a case-by- 
case basis, as is suggested by Chudson and Wells. Most foreign investors, in- 
cluding the U.S. multinational enterprises, have a preference to use their own 
technology rather than adapt it to meet local conditions. Thus, some presence 
or inducement is likely to be needed to achieve adaptation. And, the larger the 
firm, the greater an inducement must be before it will become important to the 

Host countries are vitally concerned with the choice of technology and are 
likely to play a major role in achieving adaptation to meet local conditions. 
Hence, we spell out some actions that would be appropriate for them. An anal- 
ysis of each major investment would be desirable, albeit time-consuming. 
Such an analysis would involve the calculation of both the private profitability 
of the investment for the foreign investor and the social profitability for the 
host country — the latter calculation is commonly referred to as "social cost- 
benefit analysis.'" If the social profitability, calculated using shadow prices, does 
not meet certain criteria, then the host country should ask the prospective in- 
vestor to modify his proposal in the direction of more labor intensive technol- 
ogies. However, we believe that knowledge of techniques to determine social 
profitability and knowledge of alternate technologies are not widespread in less 
developed countries. 

In addition to this direct influence on investors, developing countries could 
take a number of actions tone specific and several general in nature) that would 
exert indirect influence on investors to choose more appropriate techology. 

First, the host government could facilitate the importation of second-hand 
equipment or equipment from other developing countries. Often governments of 
developing countries are loath to spend scarce foreign exchange on second-hand 
equipment since they feel they are getting "second-hand technology." Such an 
attitude biases investments towards a more capital intensive production because 
in newer equipment from the United States. Europe, or Japan, capital is sub- 
stituted for labor (by increasing fixed capital per unit output, and reducing tbe 
number of operatives). 

Second, developing countries could reduce factor price distortions in labor 
markets and capital markets. We have seen that relative factor prices have little 
effect on the choice of technology when investing firms are able to avoid price 
competition, but, if the economic environment is more competitive, relative fac- 
tor costs influence the choice of technology. The elimination of subsidies to 
capital for investors would lie a step in the right direction. This should be ac- 
companied by the elimination of tax holidays so that the calculated return on 
investment by the foreign investor would be made on an after-tax basis. This 
would add pressure towards cost reduction, and hence toward a more appropri- 
ate production technique. Also, duty free (or preferential tariff") importation 
of capital equipment should be discontinued, thus making the import of ex- 
pensive machinery more burdensome for the investing firm. On the other hand, 
subsidies for employment should be offered to offset the difference between what 
the firm pays for labor and what the true cost of the labor is to the economy. 

Third, the business environment could be made more competitive, so that 
investors will need to pay more attention to costs, and therefore will feel more 
pressure to adapt technology towards reducing manufacturing costs. This can 
be done by decreasing the degree of protection from imports, and also by seek- 
ing to enlarge the market, possibly through regional integration. Furthermore, 
a more attractively sized market can be offered to the investing foreign firm 
if the number of competitors in the industry is kept low. This might seem a con- 
tradiction to the recommendation to increase competition, but it has the experi- 
ence of many developing countries that a large number of producers in one 
industry, when the market is limited, actually results in higher prices. Effective 
competition could come from imports, and the degree of competitive pressure 
may be adjusted through the variation in import tariffs. 


Fourth, a host country could take steps to facilitate foreign Investment that Is 
intended to serve export markets by taking advantage of low labor costs. These 
linns have a built-in competitive pressure to adapt their manufacturing process 
to wages. Here the host country need not worry about Increasing the com- 
petitive climate in order to bring about more adaptation, since this kind of 
investment seeks to reduce costs through full utilization of low wage labor. 

Fifth, the host government could give very clear indications to prospective 
investors as to what its policy is on imports of foreign technology, often, differ- 
ent ministries send out different signals to investors, which cause conflicting 
responses. For example, the ministry of industry might have a preference for 
"modern" investment, and the creation of a highly industrialized leading sector 
in the economy. The ministry of labor, on the other hand, might pressure the 
investor for maximum employment. 
r. The Mode of Transfer 

When technology is transferred together with equity investment, it is difficult 
to separate manufacturing technology from management technology. Indeed, 
often the host country is not aware of the alternatives. The foreign investor 
presents for approval to host governments a complete package, indicating few. 
if any. alternatives to the production process. The employees of ministries who 
review this project proposal are often not familiar with the industry. 

Hut when technology is purchased via licensing agreements or in the form 
of equipment, this separation is made clear. Tims, technology not packaged 
with an equity investment may offer more alternatives to choose techniques that 
are more appropriate to the local environment. Unfortunately, not all tech- 
nologies that a developing country might need are available through licensing 
or equipment purchase, because U.S. multinational enterprises tend to prefer 
equity investments to pure licensing arrangements. 

Though licensing permits the local entrepreneur or government a wider choice, 
the transfer of skills is. however, more limited than with an equity. In certain 
developing countries, for example, there might he no local firm capable of effec- 
tively making use of licensed technology. Joint ventures offer a good means of 
transferring modern industrial skills, while at the same time involving a local 
entrepreneur who might ask pertinent questions about the manufacturing process 
used. Still, some review of technology by the local partner might favor capital 
intensive technology (since this partner shares in the benefits of non-price com- 
petition » and thereby not pressure the foreign partner for more adaptation. 

To be sure, studies have pointed out that U.S. multinational firms possessing 
exclusive technologies, which are held only by a few firms in the industry, do 
not readily enter into joint ventures as do firms in industries which have more 
mature technologies. But this need not unduly handicap developing countries in 
encouraging technology transfer via equipment purchase, licensing, or joint ven- 
tures (or some combination thereof i : because products and processes that are 
appropriate for developed countries are likely to be mature and hence are often 
available through licensing. 
/). Detailed Recommendations 

The key conclusions upon which our detailed recommendations rest are: 

1. U.S. multinational enterprise — those large firms that account for most U.S. 
foreign direct investment— base their corporate strategies on the products and 
processes they develop for use in the United States and other economically 
advanced countries. They have preferred not to change these products and 
processes unless pressured to do so. either by the direct influence of a govern- 
ment or by indirect influences such as strong competition. 

2. The host governments should be the organizations most concerned with the 
use of appropriate technology, and are likely to play a major role in inducing 
firms to adapt products and processes to meet local conditions. Vet officials ol 
local governments lack knowledge in achieving such adaptation. 

3. The transfer of technology via purchased equipment, licenses, or joint 
ventures rather than through arrangements in which I'.S. firms have KM) percent 
ownership will facilitate the adaptation of technology to meet local conditions. 

The two key tools upon which our recommendations rest are: <1 I educational 
programsand (2) monetary incentives. 

l. Educational programs.— Establish an "intermediate technology organiza- 
tion," perhaps a separate institute, with the primary function of providing in- 
depth training in the choice and evaluation of appropriate technologies. Ibis 


training would be provided for government officials and enterpreneurs from 
developing countries and for U.S. equipment suppliers. U.S. manufacturing com- 
panies, and U.S. consulting firms. 

Although a number of viable formats could be developed, an illustrative one 
would lie to have a "core"' program in which the participants study individual 
cases of technology transfer to obtain better knowledge about the problems and 
opportunities involved, and also to learn about cost-benefit analysis so that 
differences between the view of the investor and the view of the nation are made 
explicit. The "core" program could be followed by a "practice" program, in which 
the participants visit U.S. firms engaged in the development of equipment. 
- and products in order to insure that the U.S. entities are aware of 
the needs of. and exposed to opportunities in. host countries. 

As an illustration of one possibility, officials in charge of the textile industry 
in less-developed countries and local entrepreneurs interested in textiles could 
visit U.S. manufacturers of textile equipment for a sufficiently Ions time to meet 
two goals: ill the U.S. manufacturers would know local requirements: and (2) 
the persons from the less-developed countries would know the capabilities of the 
U.S. firms and become familiar with U.S. -made equipment. The net result would 
be greater exports of U.S. equipment, equipment that would be appropriate for 
rhe host countries. 

Although the initial experience involved in starting the program would help 
in deciding upon future participants, we believe that it will prove important to 
involve officials of less-developed countries and U.S. equipment manufacturers. 
These two groups would have much to gain from the programs. 

In addition to providing these "core" and "practice" programs, creation of 
a training organization would provide a permanent body of people interested in 
further dissemination of intermediate technologies to developing countries. Such 
a permanent body could: 

i '/i organize conferences on particular topics concerning the problems 
and opportunities offered by intermediate technologies ; 

i '/ 1 sponsor academic studies on appropriate technologies, and develop 
an archive of research cases drawn -from various industries in several 
developing countries: 

(c) act as an information clearing house for U.S. technologies that would 
be appropriate for developing countries, and keep extensive permanent files 
open to all interested parties; 

i '/ i publicize its role of information dissemination, through circulars 
and advertisements in trade publications and by publishing a journal : and 
(C) provide experienced consultants both to irovernments and industry. 
Prior to the creation of a formal organization. AID should take two steps to 
help insure that the creation will lie successful : 

1. Visit organizations in other countries, especially France. Japan, and the 
United Kingdom, that are interested in technology transfer. Although none of 
rhese organizations are identical with the one recommended by us. something 
useful can be learned by visiting them. These visits should last a number of 
weeks in order to provide thorough knowledge. 

2. Organize an international conference on the subject of appropriate tech- 
nologies for developing countries. Such a conference should last for a minimum 
of ten days. Its purpose would be three-fold. 

( '/ 1 educate decision-makers concerning the benefits of more labor in- 
tensive technologies for developing countries: 

i h i make these decision-makers of the analytical tools — e.g. social 
benefit analysis — to soundly evaluate investment proposals: 

(c) discuss the establishment of the "intermediate technology organiza- 
The participants to such a conference should be: 

i </ l officials from developing countries— these officials should l>e em- 
ployed in the ministries that evaluate foreign investment proposals, and 
should have themselves participated in such evaluations (AID could ask 
the governments of developing countries, through the American emb 

submit suitable candidates for such a conference: the cost could be 
borne totally, or in part, by AIDi : 

th\ entrepreneurs from developing countries or their engineering person- 
nel — these should be persons responsible for equipment selection: 


(o) officials from countries that have a program of attracting foreign 
investment for export industries — such as Indonesia. Korea. Malaysia. 
Taiwan. Singapore, Mexico and the Bahamas; 

(<Z) U.S. equipment manufacturers— these could be attracted through ap- 
propriate advertisements of the conference plus correspondence and con- 
tacts with trade associations : 

(e) engineers from U.S. firms involved in the design of plants for de- 
veloping countries— advertisements and correspondence should be used: 

(/) personnel from I'.S. consulting firms interested in less developed 
countries — again, advertisements and correspondence should he used; 

(g) managers of I'.S. multinational enterprises with an interest in seek- 
ing better technologies for less developed countries ; 

{h ) managers of U.S. firms in industries that suffer because of competing 
imports, and that would benefit from off-shore investment or procurement — 
e.g. textiles, garments, shoes: and 

i /' i scholars who have studied the problems of appropriate technology for 

developing countries. 

•_'. Monetary incentives. — Although we believe that the educational programs 

are likely to prove the most cost-effective method of obtaining results, some 

experimentation with monetary incentives should be worthwhile. Some examples 

of actions that AID could take include : 

i r/ i Ask l.S. investors about to invest in a less-developed country to develop 
a new design of plants that would employ more labor and use less capital than 
their customary plant designs. If the investor, after having developed a new 
design decided not to use it. All) would pay for the extra expenses incurred in 
making the design (a limit on the expenses provided would be set in each case) 
and would obtain the rights to the design so that it could be made available to 
other firms. If on the other hand, the new design were to be adopted by the 
firm that developed it. no reimbursement would be due. 

(6) Give grants to U.S. equipment manufacturers to encourage the develop- 
ment of appropriate technologies for less-developed countries. The reward sys- 
tem might be similar to that discussed above under (a) : i.e. the firm is paid for 
the design if it does not use it. but not paid if if does. 

i ci Give grants to consulting firms to encourage the coupling of foreign in- 
vestment opportunities with I'.S. companies: for example, a I'.S. consulting firm 
could survey one or two low-income countries for investment opportunities and 
then encourage I'.S. firms to exploit these opportunities by using appropriate 
technology. To illustrate: There are opportunities for investments in food- 
canning facilities in some African countries such as Kenya: a I'.S. consulting 
firm could locate these opportunities and then form a company composed of a 
U.S. equipment manufacturer, a U.S. food company, and local entrepreneurs to 
start a factory utilizing appropriate technology. 

(«?) (Jive special export credits for U.S. firms that export used machinery for 
use in less-developed countries. 

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